Chesapeake Energy seeks shale partners

Chesapeake Energy Corp. is in talks with potential partners to help develop Barnett Shale and other U.S. properties, CEO Aubrey McClendon said Wednesday.

"There is a high degree of international energy company interest in gas shale in the U.S.," the natural gas producer's top executive said on a conference call with analysts and investors. "We have multiple ongoing conversations with multiple international energy companies, some of which involve the Barnett and some of which involve other plays."

Shale formations, which are more costly to develop than traditional wells, provide new sources for natural gas in states including Texas, where the Barnett is located. Oklahoma City-based Chesapeake explores for gas in Barnett, Haynesville Shale in Louisiana and Texas, and Marcellus Shale in the Northeast.

The company in July agreed to form a joint venture with Plains Exploration & Production Co. to help develop Haynesville. In November, Chesapeake agreed to join StatoilHydro ASA of Norway in its first venture outside of the U.S. to develop unconventional natural-gas assets in China, Ukraine and Romania.

Chesapeake on reported a fourth-quarter loss Tuesday of $860 million after writing down the value of properties because of tumbling energy prices.

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Permalink Reply by Grillin' - MmmMmm on February 24, 2009 at 8:21
Went through the Purchase/Sale Agreement and the Participation Agreement which are attached to the July 8, 2008 8-K. In the Participation Agreement, it lines out the "Promoted Well" costs and gives the promoted carry for the drilling and completion costs ONLY. In looking through the document, I did not see anything that says that PXP will get the corresponding disproportionate production revenue until the promoted costs are recouped. Based on the structure of the agreement and the other pieces referencing revenue, Working Interest, etc., I have concluded that PXP will be paying the extra portion of the capital costs to drill and complete the well, but will only receive production/revenue and pay operating costs in line with its 20% WI, not the additional carry costs. That is quite a bit different from what Buck lined out.

I also found out that CHK only transferred a 75% Revenue Interest, proportionately reduced. Anything above that is carried as a CHK ORRI!!! So, if a lease has an old 1/8 royalty on it, CHK is assigning to PXP 20% of 75% for revenue interest. The remaining 12.5% is kept by CHK as an ORRI. So, a lease has a 1/8 royalty, meaning that CHK has a 87.5% RI. Then then assign to PXP 20% of 75% or 15% and CHK keeps 72.5% RI. So the pay 40% of the well costs and get 72.5% of the revenue!!

On a 20% royalty lease, PXP again gets 15% RI and CHK gets 65% RI. Again, a pretty sweet deal! This is done all the time but I've never seen it in a "cooperative JV" structure.
Permalink Reply by Sandstone on February 24, 2009 at 9:12
Unique and sweet - honey sweet; makes you wonder where's the stinger. Thanks for all your trouble getting this information.
Permalink Reply by P.G. on February 24, 2009 at 3:01
Anyone know anything about Samson Contour Energy?
Looks like they fixing to put units together in 17n 15w.
Are they partners with Chk?
Are they going to be drilling horizontals?

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