Chesapeake Makes $1.1 Billion Sale to Boost Drilling
Chesapeake Energy Corporation has monetized a portion of its proved reserves and production in certain Chesapeake-operated producing assets in Kentucky and West Virginia.
The company has sold a volumetric production payment (VPP) to affiliates of UBS AG and DB Energy Trading LLC (a subsidiary of Deutsche Bank AG) for proceeds of $1.1 billion. The VPP entitles the purchaser to receive scheduled quantities of natural gas from Chesapeake's interests in over 4,000 producing wells, free of all production costs and production taxes over a 15-year period.
The transaction, which closed on December 31, 2007, includes approximately 210 bcfe of proved reserves and 55 mmcfe per day of current net production, or approximately 2% of the company's current proved reserves and net production. Chesapeake has retained drilling rights on the properties below currently producing intervals and outside of existing producing wellbores. The company's operating and financial results will reflect reduced production and proved reserve volumes following the closing of the VPP transaction. Jefferies Randall & Dewey acted as financial advisor to Chesapeake.
Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented: "We are pleased to successfully implement another component of our 2007-2009 enhanced financial plan. The production from these assets was monetized at a discount rate of 6.3% and the proceeds will be redeployed into our low-risk drilling program at anticipated rates of return in excess of 30%. Our first VPP transaction generated a high level of interest from financial investors and we look forward to further success in monetizing similar packages of mature properties in 2008 and 2009 for further proceeds of at least $2 billion."
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