Parallel Petroleum Corporation has entered into a farmout agreement with Chesapeake Energy Corporation related to its Barnett Shale gas project.

On February 11, 2009, Parallel and Chesapeake Energy Corporation entered into a farmout agreement related to Parallel's approximate 35% interest in their Barnett Shale gas project. Under the farmout agreement, for all wells drilled on Parallel’s Barnett Shale leasehold from November 1, 2008 through December 31, 2016, Parallel has agreed to assign to Chesapeake 100% of Parallel’s leasehold in the Barnett Shale, subject to the following terms:

All wells drilled from November 1, 2008 through December 31, 2009, and all wells drilled during each succeeding calendar year through 2016 will be treated as a separate project or payout period, creating eight (8) separate projects or payout periods. At the time Chesapeake commences the drilling of a well during one of the payout periods, Parallel will assign to Chesapeake 100% of its leasehold interest within the subject unit or lease, reserving and retaining a 50% reversionary interest that will vest after Chesapeake recovers 150% of its costs for a particular payout period. Until 150% payout has been reached, Chesapeake will fund 100% of Parallel’s costs for drilling, completing and operating wells during the payout period. On each project, Chesapeake is entitled to receive all revenues from Parallel’s reversionary interest until Chesapeake receives revenues totaling 150% of the drilling, completion and operating costs Chesapeake incurs in funding Parallel’s reversionary interest. Upon reaching the 150% payout level for a given project, 50% of the interest assigned to Chesapeake will revert back to Parallel. After 150% project payout, Parallel will pay all costs and receive all revenues attributable to its 50% reversionary interest in each project. For all wells drilled after January 1, 2017, Parallel will pay all costs and receive all revenues attributable to its 50% reversionary interest.

Tags: Parallel Petroleum Corporation