Sinopec purchasing 50% of Chesapeake Energy leasehold in Mississippi Lime unconventional play for $1.02B

26 February 2013

Chesapeake Energy Corporation and Sinopec International Petroleum Exploration and Production Corporation (Sinopec) executed an agreement which provides for Sinopec to purchase a 50% undivided interest in 850,000 of Chesapeake’s net oil and natural gas leasehold acres in the Mississippi Lime play in northern Oklahoma (425,000 acres net to Sinopec). The total consideration for the transaction will be $1.02 billion in cash, of which approximately 93% will be received upon closing.

Payment of the remaining proceeds will be subject to certain customary title contingencies.

Chesapeake in the Mississippi Lime. Source: Chesapeake. Click to enlarge.

Chesapeake is the largest leaseholder in the Mississippi Lime (which is in Kansas and Oklahoma) with ~ 2 million net acres. The company discovered the horizontal play in 2007, and currently has 273 horizontal producing wells, with 55 wells coming online in 4Q 2012.

Production from these assets (including Mississippi Lime and other formations), net to Chesapeake’s interest and prior to Sinopec’s purchase, averaged approximately 34,000 of oil equivalent per day in the 2012 fourth quarter and, as of 31 December 2012, there was approximately 140 million barrels of oil equivalent of net proved reserves associated with the assets. The production mix in the fourth quarter was 46% gas, 45% oil, and 9% natural gas liquids.

All future exploration and development costs in the joint venture will be shared proportionately between the parties with no drilling carries involved. As the operator of the project, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the joint venture. The transaction is anticipated to be completed in the 2013 second quarter.

We are excited to announce the execution of our Mississippi Lime joint venture with Sinopec, which moves us further along in achieving our asset sales goals and secures an excellent partner to share the capital costs required to actively develop this very large, liquids-rich resource play.

—Steven C. Dixon, Chesapeake’s COO