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CNOOC to purchase 33% of Chesapeake’s shale interests

Oilfield Technology,

CNOOC Limited is to purchase a 33.3% undivided interest in Chesapeake Energy Corporation’s 600,000 net oil and natural gas leasehold acres in the Eagle Ford Shale project in South Texas. The consideration for the sale will be US$ 1.08 billion in cash at closing, subject to adjustment. CNOOC Limited has also agreed to fund 75% of Chesapeake’s share of drilling and completion costs until an additional US$ 1.08 billion has been paid, which Chesapeake expects to occur by year-end 2012.

Yang Hua, Vice Chairman and Chief Executive Officer of CNOOC Limited, said, "The cooperation with Chesapeake in shale oil and natural gas is consistent with our value-driven overseas development strategy. The execution of this project will benefit CNOOC Limited's long term production and reserves growth and should produce considerable returns for our shareholders.”

As operator of the project, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the project. Over the next several decades, the companies plan to develop net unrisked unproved resource potential up to 4 billion barrels of oil equivalent.

Chesapeake is currently utilising 10 operated rigs to develop its Eagle Ford leasehold and with the additional capital from CNOOC Limited, anticipates increasing its drilling activity to approximately 12 operated rigs by year-end 2010, approximately 31 rigs by year-end 2011 and approximately 40 rigs by year-end 2012. Approximately 900 wells are expected to be drilled by the end of 2012.

Currently Chesapeake has 10 horizontal Eagle Ford wells in production with initial production rates of up to 1160 barrels of oil and 0.4 million ft3 of natural gas per day in the oil window and 4.0 million ft3 of natural gas and 1,200 barrels of oil per day in the wet gas window. Chesapeake anticipates the project will reach its peak production of 400,000 - 500,000 barrels of oil equivalent per day in the next decade.

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 U.S. and in the payment of very significant local, state and federal taxes.”

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