CNOOC has agreed to acquire a 33.33% interest in Chesapeake Energy's 800,000 net acres in the Denver-Julesberg and Powder River Basins.
The up-front payment is US$570 million with another US$697 million in carried costs on behalf of Chesapeake over a period estimated to run through 2014. Specifically, CNOOC will carry 66.7% of Chesapeake's share of drilling and completion costs.
The acreage targets the Niobrara with nearly 60% estimated to be located in Wyoming's Powder River Basin and the remainder in the DJ in Southern Wyoming and Northern Colorado. Like the prior Eagle Ford deal with Chesapeake, this latest transaction is focused on liquids-weighted resource potential.
Chesapeake's entry into Rocky Mountain operations in the first half of 2010 was a significant departure from prior strategy. The earlier strategy specifically avoided Rocky Mountain operations. This reflected, at least in part, the substantial discounting of Rocky Mountain gas prices relative to the company's traditional areas of focus. The shift was explained as part of a strategic move to increase the role of liquids-rich plays.
The rest of this article evaluates the economics of the CNOOC transaction and is reserved for premium subscribers...