BP to pay $1.9 billion for Chesapeake properties in Fayetteville Shale

The Associated Press

British oil company BP PLC said Tuesday that its U.S. unit plans to buy a 25 percent stake in Chesapeake Energy Corp.’s Fayetteville Shale assets in Arkansas for $1.9 billion.

BP said that a letter of intent has been signed for the deal, which comes just a month after BP America bought Chesapeake’s Arkoma Basin Woodford Shale assets in Oklahoma for US$1.7 billion.

“This transaction, when combined with our recent Woodford acquisition, establishes a material position in the two attractive shale plays in the Arkoma Basin,” said BP Chief Executive of Exploration and Production Andy Inglis.

The Arkansas assets have a daily net production of around 180 million cubic feet of natural gas equivalent and include approximately 540,000 net acres of leasehold, which the companies believe could support the drilling of up to 6,700 future horizontal wells.

As a result of the transaction, BP will own approximately 135,000 net acres of this leasehold and Chesapeake will own approximately 405,000 net acres.

BP will pay $1.1 billion in cash at the close of the deal and will pay a further $800 million during the remainder of 2008 and in 2009 by funding 100 percent of Chesapeake’s 75 percent share of drilling and completion expenditures.

Chesapeake plans to continue acquiring leasehold in the Fayetteville Shale play and BP will have the right to a 25 percent participation in any such additional leasehold, the companies said.

“We believe this transaction creates substantial value for both companies, highlights the attractiveness and significant value of Chesapeake’s assets and confirms the structural appeal of our innovative joint venture structures,” said Chesapeake Chief Executive Aubrey K. McClendon.

The deal is subject to “execution of mutually acceptable definitive documentation,” which the companies expect to occur within the next week. They anticipate closing the deal later this month.