Gastar Exploration and Chesapeake Energy Close Acquisition Deal
Gastar Exploration and Chesapeake Energy Corporation have closed the previously announced inter-dependent transactions under which Chesapeake acquired newly issued Gastar common shares equivalent to 19.9% of Gastar's common stock and a 33% interest in Gastar's Hilltop Prospect and the companies formed a 13-county area of mutual interest ("AMI") in East Texas.
Under the terms of the agreements executed between Gastar and Chesapeake, Chesapeake acquired 27,151,641 newly issued common shares of Gastar common stock at a price of CDN $3.31 per share for a total of approximately USD $76 million. Chesapeake also acquired 33% of Gastar's leasehold interest in the Hilltop Prospect area of Leon and Robertson Counties, Texas (less and except 160 acre units surrounding each of Gastar's existing wells) for a payment of approximately $5.6 million at closing and an additional $2.1 million payment within 90 days of closing subject to post-closing title and due diligence completion. Chesapeake has also agreed to pay a disproportionate amount of the drilling costs to casing point on the first six wells drilled by the parties to a depth sufficient to test the Deep Bossier Formation (an approximate depth of 19,000'). Under this arrangement, Chesapeake will pay 44.44% of the costs through casing point on an 8/8ths basis for a 33.33% working interest. Gastar will be designated the operator of the wells drilled in the Hilltop Prospect. In addition, Gastar and Chesapeake also formed an area of mutual interest ("AMI") covering 13 counties in East Texas under which Chesapeake shall have a first right to purchase up to an undivided 50% of any leasehold/working interest rights acquired by Gastar within the AMI on pre-determined terms.
In connection with the transaction, Gastar has notified Chesapeake of a recent claim made by a third party that it has a right to purchase 33.33% of Gastar's interest in certain oil and gas leases located in Leon and Robertson Counties, Texas pursuant to a preferential right provision of an Operating Agreement dated July 7, 2000. This claim is set forth in a certain petition for breach of contract and declaratory judgment filed as Cause No. 0-05-451, Navasota Resources, L.P., Plaintiff vs. First Source Texas, Inc., First Source Gas L.P., and Gastar Exploration, Ltd. in the District Court of Leon County, Texas 12th Judicial District on October 31, 2005. Gastar contends, among other things, that the claimant, neither properly nor timely exercised any preferential right election it may have had with respect to the inter-dependent transactions. Accordingly, Gastar intends to vigorously defend the claims.
Aubrey K. McClendon, Chesapeake's Chairman and CEO, commented, "We are pleased to have closed this transaction and now look forward to working closely with Gastar in the years ahead to more fully develop the Hilltop Prospect property and to participate in new prospects in the 13-county AMI."
Also commenting on the closing, J. Russell Porter, Gastar's
President and CEO, stated, "We believe that entering into this transaction with Chesapeake creates significant value for Gastar through Chesapeake's contribution of expertise, capital and access to drilling rigs and services. We look forward to working with Chesapeake to create additional value for both entities. With Chesapeake's involvement we will be able to accelerate exploration and development drilling of the Hilltop area resulting in the creation of that value sooner, and hopefully in greater
amounts, than had Gastar continued exploration and development
of the Hilltop area independently."
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