2010-03-10-2010-01-18-2010-02-03

JV to acquire 50% WI in 11,500 gross acres targeting Marcellus shale in Susquehanna Co., PA.

Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) has acquired a 50% interest in joint-venture agreement with Ontario-based Epsilon Energy Ltd. (Toronto: EPS) to develop its Marcellus shale holdings for a total deal value of $100 million.

Chesapeake paid $5 million in cash up front and will carry the first $95 million of Epsilon's 50% share of leasehold, drilling, completing, equipping and gathering costs. The carry obligation is expected to be completed by August 2012.

The joint venture involves a total 11,500 net acres (5,250 net to Chesapeake) in Epsilon's Highway 706 prospect in Susquehanna County, Pennsylvania. Current total production is approximately 10 million cubic feet of gas per day. Epsilon believes some 120 to 150 additional net drilling locations exist (60 to 75 net to Epsilon). Chesapeake plans to spend some $195 million developing the Highway 706 prospect.

Epsilon executive chairman, president and chief executive Zoran Arandjelovic says, "Chesapeake's expertise will help us maximize return on our Pennsylvania assets while freeing up our resources to concentrate on our New York Marcellus shale prospect."

Aubrey K. McClendon, Chesapeake chief executive, says, "(Epsilon's) acreage is located in an area of Susquehanna County where we expect average estimated ultimate reserve recoveries to be substantially greater than those found on average in the Marcellus. We expect to begin development work in the prospect area in short order."

Clarus Securities Inc. is financial advisor to Epsilon. GMPSecurities LP and Cormark Securities Inc. provided independent strategic advice to Epsilon.

Pritchard Capital Partners LLC analyst Ray Deacon says the implied transaction price assuming $50 million of value for net production of 5 million cubic feet per day is $8,072 an acre.