Chesapeake Energy Corporation ("Chesapeake", NYSE:CHK) and CNOOC Limited (NYSE:CEO; SEHK:0883) today announced the execution of an agreement whereby CNOOC International Limited, a wholly-owned subsidiary of CNOOC Limited, will purchase 33.3% undivided interest in Chesapeake's 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming. The consideration for the transaction will be $570 million in cash at closing. In addition, CNOOC Limited has agreed to fund 66.7% of Chesapeake's share of drilling and completion costs until an additional $697 million has been paid, which Chesapeake expects to occur by year-end 2014. Closing of the transaction is anticipated in the first quarter of 2011.


As the operator of the project, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the project. Chesapeake is currently operating 16 producing wells in the DJ and Powder River Basins that have reached initial production rates of up to 1,000 barrels of oil and 3.0 million cubic feet of natural gas per day. Over the next several decades, the companies plan to develop net unrisked unproved resource potential up to 5.0 billion barrels of oil equivalent (after deducting an assumed average royalty burden of 20%). Chesapeake is currently utilizing five operated rigs to develop its DJ and Powder River Basins leasehold and with the additional capital investment from CNOOC Limited, anticipates increasing its drilling activities to approximately 10 rigs by year-end 2011 and 20 rigs by year-end 2012.

CNOOC Limited will have the option to acquire a 33.3% share of any additional acreage acquired by Chesapeake in the area and the option to participate with Chesapeake for a 33.3% interest in midstream infrastructure related to production generated from the assets.

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