OKLAHOMA CITY — Chesapeake Energy Corp. and Chinese oil giant CNOOC Limited have agreed to work together to tap oil from the Niobrara shale formation in Wyoming and Colorado.
Chesapeake announced Sunday night that CNOOC International Limited, a wholly-owned subsidiary of CNOOC Limited, will purchase 33.3 percent undivided interest in Chesapeake's 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg (DJ) Basin in northeast Colorado and the Powder River Basin in Wyoming.
CNOOC, China's largest offshore oil and gas producer, will pay $570 million in cash at closing. In addition, CNOOC has agreed to fund 66.7 percent of Chesapeake's share of drilling and completion costs until an additional $697 million has been paid. Chesapeake expects that to occur by year-end 2014.
Closing of the transaction is anticipated in the first quarter of 2011. As the operator, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the project.
Chesapeake Energy, based in Oklahoma, currently is 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 million cubic feet of natural gas per day.
Over the next several decades, the companies plan to develop unproved resource potential up to 5 billion barrels of oil equivalent, Chesapeake said in a news release.
Chesapeake currently has five drilling rigs in Wyoming and Colorado with the additional capital investment from CNOOC Limited, anticipates increasing its drilling activities to approximately 10 rigs by the end of this year and 20 rigs by year-end 2012.
CNOOC Limited will have the option to acquire a one-third share of any additional acreage acquired by Chesapeake in the area and the option for a 33.3 percent share in midstream infrastructure related to production generated from the assets.
Aubrey K. McClendon, Chesapeake's chief executive, said this is the company's sixth industry development agreement and its second transaction with CNOOC.
"This transaction will provide the capital necessary to accelerate drilling of this large domestic oil and natural gas resource," he said. "Moreover, this project will advance the efforts of both the U.S. and China to reduce greenhouse gas emissions and accelerate commercial opportunities for the development of shale gas resources in China." McClendon added.
Fu Chengyu, chairman of CNOOC Limited, said, "We believe this project is meant to be mutually beneficial to both parties, as well as for both Sino-U.S. energy industries."
Meanwhile, Chesapeake Energy was named one of Fortune’s “100 Best Companies to Work For” in the U.S. for the fourth consecutive year. Chesapeake’s rank this year is No. 32, up from No. 34 last year and No. 73 in 2009.
The company has experienced a 10 percent full-time job growth rate throughout the past year and is actively hiring in every facet of its business.
Martha A. Burger, Chesapeake’s senior vice president for Human & Corporate Resources, said, “Our consistent ranking as one of America’s best places to work is a true reflection of the commitment of our diverse workforce and the unique benefits and culture we provide.”
Some of Chesapeake’s unique benefits for its 10,000 employees include three on-site restaurants, an on-site medical center, a state-of-the-art fitness center, a cash incentive to employees who practice healthy lifestyles and more.
The full list is available at http://www.fortune.com/BestCompanies
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