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Oklahoma’s Chesapeake Energy acquires $220 million in properties
Petroleum News Houston Staff
Fast-growing Chesapeake Energy has acquired another $220 million in natural gas assets in the U.S. Midcontinent, in part causing the Oklahoma-based independent to raise production and reserve thresholds for the quarter and year.
Chesapeake said June 24 that it added reserves of 135 billion cubic feet of gas equivalent and production of 35,000 million cubic feet per day of gas equivalent through its acquisition of privately held Oxley Petroleum and from other smaller deals.
After allocating $40 million from the purchase price to gas plants, gas-gathering systems and unevaluated leasehold, Chesapeake’s acquisition cost per million cubic feet of proven reserves was $1.33, the company said.
Chesapeake said it intends to finance the $220 million worth of acquisitions using cash on hand and short-term borrowing from its $350-million bank credit facility.
For the second quarter ending June 30, the company said production would average more than 710,000 million cubic feet per day of gas equivalent, up from its previous forecast of 675,000 million cubic feet per day of equivalent. Of the 35,000 million cubic feet of increase, 20 percent was attributed to the Oxley transaction and 80 percent to better-than-expected drilling results.
Moreover, Chesapeake said second-half output should exceed 740,000 million cubic feet per day of equivalent, an increase of 65,000 million cubic feet per day over April’s forecast of 675,000 million cubic feet per day. Fifty percent of the expected increase was attributed to recent acquisitions and the remainder to drilling.
In total, the company has increased its 2003 production forecast by 6 percent from a range of 240 to 245 billion cubic feet of equivalent to 255 to 260 billion cubic feet of equivalent.
For 2004, production could total 275 to 280 billion cubic feet of equivalent, or 760,000 million cubic feet per day at the mid-point of the forecast, Chesapeake said. Additional drilling planned The company’s recent acquisitions together with its drilling program should boost estimated proven reserves at the end of the 2003 second quarter to about 3 trillion cubic feet of gas equivalent, Chesapeake said.
“We expect to substantially increase the value of these newly acquired properties through additional drilling and by reducing administrative and operating costs,” said Aubrey McClendon, Chesapeake’s chief executive officer.
Oxley’s primary focus was the Arkoma Basin in eastern Oklahoma and western Arkansas where Chesapeake owns about 250 billion cubic feet of proven gas reserves and about 50,000 million cubic per day of production. Of the properties being acquired, 82 percent are in townships in which Chesapeake owns existing interests.
The majority of the other assets purchased by Chesapeake are in the Greater Mayfield area of Beckham County in western Oklahoma, where the company already is active and plans to spend 10 percent of this year’s projected $600-million capital budget on exploration and development.
In February, Chesapeake announced the purchase of an estimated 350 billion cubic feet of proven gas reserves in the U.S. Midcontinent in separate transactions with El Paso and Vintage Petroleum totaling $530 million.
In December 2002, Chesapeake announced the purchase of $300 million worth of Midcontinent properties from fellow Oklahoman Oneok in a deal that added 180 billion cubic feet of gas to Chesapeake’s reserve base.
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