Chesapeake Energy Corporation (CHK) entered into a joint venture agreement with Total SA (TOT) in the Barnett Shale, with Total SA agreeing to pay $2.25 billion for a 25% interest in Chesapeake Energy’s properties.
Total SA will pay $800 million upon the closing of the deal, and then will pay an additional $1.45 billion through the funding of 60% of Chesapeake Energy’s drilling and completion costs in future Barnett Shale development.
Chesapeake Energy is one of the largest operators in the Barnett Shale, with 270,000 net acres under lease, 60% of which is held by production. The company has proved reserves of 3.0 trillion cubic feet equivalent of natural gas, and current production of 700 million cubic feet equivalent per day. Chesapeake Energy believes that it has 3,100 additional locations left to drill on its acreage in the Barnett Shale.
Chesapeake Energy has a rate of return of 32% on its wells in the Barnett Shale at a price of $7.00 per mcf, using the following assumptions:
Initial production rate – 2.5 million cubic feet per day
First year decline rate – 70%
Estimated Ultimate Recovery - 2.65 Bcfe
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