Epsilon announced the execution of a letter of intent for the development of its Highway 706 Prospect in the Marcellus Shale with Chesapeake Energy Corporation. Chesapeake will earn a 50% interest in the proposed joint venture of Epsilon's Highway 706 Prospect by paying $5 million in cash upfront and by carrying the first $95 million of Epsilon's 50% share of leasehold, drilling, completing, equipping and gathering costs attributable to the Prospect. The carry obligation is expected to be completed within 30 months after the closing date of February 1, 2010. The joint venture arrangement is subject to the completion of a Purchase and Sale Agreement.
The assets subject to the proposed Epsilon-Chesapeake joint venture include approximately 11,500 net acres of leasehold in the Highway 706 area in Susquehanna County, Pennsylvania, approximately 10 MMcf/day of current natural gas production and related compression, pipeline and tap site facilities. In addition, Epsilon believes that its leasehold position will support the drilling of approximately 120-150 additional net locations (60-75 net to Epsilon).
Zoran Arandjelovic, Epsilon's Executive Chairman, President and CEO, stated, "We are very pleased and honored to partner with Chesapeake, the world's leading shale gas operator. Chesapeake is the second largest producer of natural gas in the United States. This transaction will allow Epsilon to reduce its future capital expenditures and further position us to improve our exploration and development costs and returns on capital for years to come as well as develop our expertise in unconventional hydrocarbons."
Mr. Arandjelovic added "This proposed joint venture will allow Epsilon to invest in the development of its other North American properties including other Marcellus Shale assets in New York, Bakken Oil assets in Saskatchewan and Utica Shale assets in Quebec."
Aubrey K. McClendon, Chesapeake's Chief Executive Officer, added, "We are very pleased to have been selected by Epsilon to lead the development of their Highway 706 Prospect. Epsilon's acreage is located in an area of Susquehanna County where we expect average estimated ultimate reserve recoveries to be substantially greater than those found on average in the Marcellus. We congratulate Epsilon on acquiring this very high quality acreage and we are eager to begin development work in the prospect area soon after closing."
Clarus Securities Inc. is acting as financial advisor to Epsilon with respect to the transaction.
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