Chesapeake piles on acquisitions in core producing areas

Ray Tyson

Petroleum News Houston Correspondent

Natural gas producer Chesapeake Energy keeps layering on the acquisitions, despite saying a month ago that competition and high prices were making quality properties increasingly difficult to find.

The Oklahoma-based independent said March 24 that it has entered into or is completing agreements to acquire $100 million of additional U.S. Midcontinent, Permian Basin and Texas Gulf Coast oil and natural gas assets in four separate transactions.

Last year Chesapeake concluded three separate deals totaling $510 million, including $420 million it paid for independent Concho Resources. In those transactions alone, the company added reserves of 320 billion cubic feet of gas equivalent and daily production of 70 million cubic feet of gas equivalent.

Through its recent agreements with undisclosed sellers, Chesapeake said it expects to acquire another 68 billion cubic feet of gas equivalent proved reserves, 39 billion cubic feet of probable and possible reserves and current production of 15 million cubic feet of natural gas equivalent production per day.

Chesapeake said the acquisitions, located in areas where the company already produces, would help boost its total 2004 proved oil and natural gas reserves to about 3.6 trillion cubic feet of natural gas equivalent.

After allocating $16 million of the purchase price to unevaluated leasehold, probable and possible reserves and other assets, Chesapeake’s acquisition cost per thousand cubic feet of gas equivalent of proved reserves associated with the transactions will be $1.24, the company said.

$1.39 per thousand cubic feet

The proved reserves have a reserves-to-production index of 12.5 years, are 66 percent oil and 74 percent proved developed, the company said.

Two of the acquisitions are expected to close April 1, two on May 1, Chesapeake said, adding that it intends to finance the acquisitions with proceeds from a new $255-million private issue of cumulative convertible preferred stock, some of which would be used to pay down debt.