2008-08-30-2007-12-31-2007-12-31

Acquired VPP, gaining 210 Bcfe proved, 55 MMcfe/d net for 15 years.

Investment banks UBS AG, Zurich, and Deutsche Bank AG, Frankfurt, through subsidiary DB Energy Trading LLC, have acquired a volumetric production payment for producing properties in Kentucky and West Virginia from Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) for US$1.1 billion. The banks will receive scheduled quantities of gas without production costs or taxes from Chesapeake's interests in more than 4,000 producing wells over a 15-year period. The deal involves approximately 210 billion cubic feet equivalent of proved reserves and 55 million cubic feet equivalent per day net production. The VPP obligation is approximately 2% of Chesapeake's proved reserves and net production. The company has retained drilling rights on the properties below currently producing intervals and outside of existing producing wellbores. Chesapeake chief executive Aubrey K. McClendon says, "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." Jefferies Randall & Dewey acted as financial advisor to Chesapeake. The package was first structured as a "lease" of producing assets and expected to draw interest from upstream MLPs. Morgan Stanley Research reports Chesapeake has reduced its projected funding gap to approximately $700 million from $1.8 billion previously and expects it to further close the gap with an upcoming MLP.