Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) plans to add $510 million of Midcontinent, Permian Basin and onshore Gulf Coast assets by purchasing privately owned Concho Resources Inc., Midland, Texas, for $420 million and in two smaller asset deals totaling $90 million.
Proved reserves are 320 billion cubic feet of gas equivalent; probable and possible reserves are 195 Bcfe. Production is 70 million cubic feet equivalent per day.
The Concho assets are in the Permian Basin. The assets in the two smaller deals are in the Permian and in the Goliad County, Texas, area. In Goliad County, Chesapeake will purchase a 50% interest in and operations of a large prospect area in which it had a 37.5% working interest as the result of its acquisition of Canaan Energy Corp. in 2002.
Chesapeake's 2004 production forecast will grow 9% to about 890 MMcfe per day, 89% gas.
Chesapeake anticipates its proved reserves, including these acquisitions, will exceed 3.4 trillion cubic feet equivalent.
After allocating $70 million of the purchase price to unevaluated leasehold, probable and possible reserves, and gas-gathering systems, Chesapeake reports the cost per thousand cubic feet of gas equivalent of proved reserves is $1.38.
Including leasehold and anticipated future drilling costs to develop the proved, probable and possible reserves, it estimates its all-in acquisition cost for the 515 Bcfe of estimated reserves will be $1.59 per Mcfe.
The proved reserves have a reserves-to-production index of 12.5 years, are 75% gas and are 67% proved developed. Initial lease operating expenses on the acquired properties are expected to average $0.56 per Mcfe, compared with $0.52 per Mcfe by Chesapeake during the first three quarters of 2003.
The Concho purchase is expected to close Jan. 30. One of the other two transactions has closed and the other will close in January 2004.
Financing will be 50% with stock and 50% with short-term and/or long-term debt.
Concho was co-founded by Timothy A. Leach, Steven L. Beal, David W. Copeland and David A. Chroback with Yorktown Energy Partners and other investors. In 2002, Concho acquired the assets of Oklahoma City-based Ricks Exploration Inc., forming its core asset base. Ricks Exploration was formed in 1984 by Art L. Swanson and Ran Ricks Jr. and was the successor to upstream operations Ricks started in 1970.