Chesapeake Energy Corporation has executed an agreement for a $2.25 billion joint venture with Total E&P USA, Inc., a wholly-owned subsidiary of Total S.A., whereby Total will acquire a 25% interest in Chesapeake's upstream Barnett Shale assets. Total will pay $800 million in cash at closing and will pay an additional $1.45 billion by funding 60% of Chesapeake's share of drilling and completion expenditures until the $1.45 billion obligation has been funded, which Chesapeake expects to occur by year-end 2012. Closing of the transaction, which is subject to regulatory approval, is anticipated by the end of January 2010.

The assets subject to the Chesapeake-Total joint venture include approximately 270,000 net acres of leasehold in the Core and Tier 1 areas of the Barnett, approximately 700 million cubic feet of natural gas equivalent per day of current net production and approximately 3.0 trillion cubic feet of natural gas equivalent (tcfe) of proved reserves (0.75 tcfe net to Total). In addition, Chesapeake believes that its leasehold position will support the drilling of approximately 3,100 additional net locations (775 net to Total) with approximately 6.3 tcfe of unrisked unproved reserves (1.6 tcfe net to Total). Approximately 60% of Chesapeake's Core and Tier 1 leasehold is held by production (HBP) and therefore considered developed.

In the framework of the joint venture, Chesapeake plans to continue acquiring leasehold in the Barnett and Total will acquire its 25% share of the new acreage on promoted terms until December 31, 2015. After such date, Total's right to acquire its 25% proportionate share of Chesapeake's leasehold will be on an unpromoted basis and Total will also begin paying 25% of Chesapeake's support costs related to the joint venture's corporate development activities.

Christophe de Margerie, Chief Executive Officer of Total, stated, "Total is pleased to be making a strategically important move by entering into the U.S. shale gas business with Chesapeake, the world's leading shale gas operator. This joint venture will provide us with a solid position in an attractive long-term resource base under competitive terms. It will allow Total to develop its expertise in unconventional hydrocarbons in order to expand its unconventional business worldwide. Additionally, this transaction adds yet another key support for Total to build the gas value chain position the Group has established in the U.S., the world's largest and most liquid natural gas market, with our existing capacity rights in the Sabine Pass LNG terminal and our gas trading and marketing organization. Total is conscious of the environmental aspect linked to producing shale gas and has confidence in Chesapeake's capacity to contain the impact of the Barnett Shale gas' operations on the environment and respect local and federal regulations and guidelines."

Tags: Chesapeake Energy Corporation, Total