Chesapeake Announces Haynesville Shale Joint Venture Amendment With PXP

Monday, August 10, 2009 9:53 AM

Chesapeake Energy has announced an amendment to its Haynesville Shale joint venture agreement with Plains Exploration & Production Company, or PXP, pursuant to which PXP has agreed to accelerate the payment of its remaining joint venture drilling carries as of September 30, 2009 in exchange for an approximate 12% reduction in the total amount of drilling carry obligations due to Chesapeake.
At the closing, scheduled to occur on September 29, 2009, Chesapeake will receive cash of approximately $1.1 billion instead of an estimated $1.25 billion in remaining carried drilling costs that PXP would have paid over the next three years under the original agreement.

In addition, Chesapeake and PXP have agreed to terminate a previous joint venture amendment that granted PXP a one-time option in June 2010 to avoid paying the last $800 million of the drilling carry obligations in exchange for the conveyance of 50% of its Haynesville Shale assets to Chesapeake.

After the closing of the amendment, Chesapeake and PXP will each pay their proportionate working interest costs on future drilling. Furthermore, Chesapeake and PXP have agreed to make several other minor modifications to the agreement.

Aubrey McClendon, CEO of Chesapeake Energy, said: "We are pleased to announce this significant modification to our Haynesville joint venture agreement with PXP that greatly benefits both companies. This agreement modification provides substantial upfront capital to Chesapeake, reduces PXP's total investment in the Haynesville and further aligns the incentives between the partners."

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Chesapeake with PXP, Exco with BG Group; a trend seems to be developing. At first I thought the HS companies may be working together, but it appears they are gathering the biggest friends (deepest pockets) to stand behind them. Either way, I hope it is profitable for both them and the landowners for many years to come.

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