Bloomberg News

Chesapeake Hasn’t Yet Closed Utica Joint Venture

January 04, 2012

(Corrects amount of future drilling costs in fifth paragraph.)

Dec. 30 (Bloomberg) -- Chesapeake Energy Corp. has not completed a joint venture valued at $2.14 billion in Ohio’s Utica shale formation that it said would close by mid-December.

“We will have an announcement when the JV agreement is complete,” Jim Gipson, a spokesman for Chesapeake, said in an e-mail yesterday.

Chesapeake said Nov. 3 it had signed a letter of intent with an unidentified international energy company to fund drilling in the Utica formation. The letter called for “execution of definitive transaction documents and closing by mid-December 2011,” according to a statement.

The letter of intent doesn’t have an expiration date, Vice President Michael Kehs said in an e-mail. The deadline was “aspirational, not required,” Kehs said.

Chesapeake said it was selling 25 percent of 650,000 acres in the field it co-owns with Houston-based EnerVest Ltd. The buyer will pay Chesapeake $640 million in cash and $1.5 billion in future drilling costs, according to the statement.

EnerVest Chief Executive Officer John Walker declined to comment yesterday.

Chesapeake CEO Aubrey McClendon said Nov. 30 that an announcement would come by the end of 2011.

Total SA, France’s largest oil and gas producer, may be the unnamed partner, a person with knowledge of the matter told Bloomberg on Dec. 7.

Last-Minute Delays

The transaction may have been delayed by last-minute negotiations, Scott Hanold, an analyst at RBC Capital Markets in Minneapolis, said in an interview.

“Some of these take longer,” said Hanold, who rates Chesapeake’s shares a “buy” and owns none.

Chesapeake has “an extremely strong track record of getting deals done and closed,” Michael Hall, an analyst with Robert W. Baird & Co., said in an e-mail. Hall rates Chesapeake’s shares an “outperform” and owns none.

The Utica formation stretches from Ohio to Canada and may hold as much as 5.5 billion barrels of oil and 15.7 trillion cubic feet of gas.

Chesapeake, which has leased 1.5 million net acres in the Utica, needs capital to fund its drilling, Hanold said.

Chesapeake, based in Oklahoma City, has signed seven joint ventures worth more than $10 billion to fund the cost of drilling in fields from Texas to North Dakota.

--With assistance from Edward Klump in Houston. Editors: Charles Siler, Jasmina Kelemen

To contact the reporter on this story: Mike Lee in Dallas at mlee326@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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