Chesapeake, CNOOC eye Niobrara in Rockies

By OGJ editors
HOUSTON, Jan. 31
– CNOOC Ltd.’s CNOOC International Ltd. will join Chesapeake Energy Corp. in a Niobrara-focused exploration and production program in the Denver-Julesburg and Powder River basins.

The companies plan to develop as much as 5 billion bbl of oil equivalent of net unrisked, unproved resource potential, after deducting royalties averaging 20%, in the next few decades.

CNOOC Ltd. will pay $570 million to purchase a 33.3% undivided interest in Chesapeake’s 800,000 net oil and gas leasehold acres in the basin and agreed to fund 66.7% of Chesapeake’s share of drilling and completion costs until a further $697 million has been paid, likely by the end of 2014.

Chesapeake expects to expand the operation from five operated rigs to 10 by the end of 2011 and 20 by the end of 2012. It operates 16 producing wells in the two basins that have reached initial production rates of up to 1,000 b/d of oil and 3 MMcfd of gas.

Chesapeake as operator will conduct all leasing, drilling, completion, operations, and marketing. CNOOC Ltd. will 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.

The deal is Chesapeake’s sixth industry development agreement and its second with CNOOC Ltd.

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