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Chesapeake sells shale acreage to CNOOC Ltd

Oilfield Technology,

Chesapeake Energy Corporation and CNOOC Ltd today announced the execution of an agreement whereby CNOOC International Ltd 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 US$ 570 million in cash at closing. In addition, CNOOC Ltd has agreed to fund 66.7% of Chesapeake’s share of drilling and completion costs until an additional US$ 697 million has been paid.

As the operator, 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 1000 bpd of oil and 3 million ft3/d.

Over the next several decades, the companies plan to develop net unrisked unproved resource potential up to 5 billion barrels of oil equivalent (after deducting an assumed average royalty burden of 20%). Chesapeake is currently utilising five operated rigs to develop its DJ and Powder River Basins leasehold and anticipates increasing its drilling activities to approximately 10 rigs by year-end 2011 and 20 rigs by year-end 2012, with the additional capital investment from CNOOC Ltd.

CNOOC Ltd will also 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.

Aubrey K. McClendon, Chesapeake’s Chief Executive Officer, commented, “This transaction will provide the capital necessary to accelerate drilling of this large domestic oil and natural gas resource, resulting in a reduction of our country’s oil imports over time, the creation of thousands of high-paying jobs in the US and in the payment of very significant local, state and federal taxes. Moreover, this project will advance the efforts of both the US and China to reduce greenhouse gas emissions and accelerate commercial opportunities for the development of shale gas resources in China, furthering the objectives of the US - China Shale Gas Resource Initiative announced by the White House on November 17, 2009.”

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