2010-10-14-2010-10-08-2010-11-16

Bought 33% stake in 600,000-acre Eagle Ford project primarily in Webb, Dimmitt, La Salle, Frio and McMullen counties.

China's state-owned firm CNOOC Ltd. (NYSE: CEO) has closed its entrance onshore the U.S. with a 33.3% undivided interest in 600,000-acre footprint in the South Texas Eagle Ford shale from Chesapeake Energy Corp.'s (NYSE: CHK) for $2.16 billion in cash and drilling carries.

CNOOC paid $1.08 billion in cash at closing and will fund 75% of Chesapeake's share of drilling and completion costs until an additional $1.08 billion has been paid, which Chesapeake estimates will occur by year-end 2012.

CNOOC has acquired 200,000 net acres primarily in Webb, Dimmitt, LaSalle, Frio and McMullen counties with some 85% in the oil window of the Eagle Ford and another 15% in the wet-gas window and dry gas window of the Pearsall shale. CNOOC will also have the option to acquire a 33.3% interest in any additional acreage Chesapeake acquires in the region, as well as the option to participate at the same interest in related midstream infrastructure. Chesapeake is operator.

CNOOC chairman Fu Chengyu, "We are delighted to close the transaction and further grow our business in line with our overseas development strategy. With our partner's expertise and experience in the shale oil and natural gas development, I believe the project will bring substantial benefits to both parties."

Chesapeake chief executive Aubrey McClendon says, "We are very pleased to have partnered with CNOOC Limited in completing our fifth industry shale development transaction. We look forward to accelerating the development of this large domestic oil and natural gas resource, resulting in a reduction of our country's oil imports over time, the creation of thousands of high-paying jobs in the U.S. and the payment of very significant local, state and federal taxes."

Currently, Chesapeake is utilizing 10 rigs and plans to increase that to 12 by year end, 31 by year-end 2011, and approximately 40 by year-end 2012 with 900 new wells anticipated in that time frame. To date, Chesapeake has 10 horizontal Eagle Ford wells in production with initial production rates of up to 1,160 barrels of oil and 400,000 cubic feet of gas per day in the oil window, and 1,200 barrels of oil and 4 million cubic feet of gas per day from the wet-gas window.

This deal marks Chesapeake's fifth joint venture in a shale play since 2008, with combined proceeds including drilling carries of $13 billion.

Yang Hua, vice chairman and chief executive of CNOOC Ltd., says, "The cooperation with Chesapeake in shale oil and natural gas is consistent with our value-driven overseas development strategy. The execution of this project will benefit CNOOC Ltd.'s long-term production and reserves growth and should produce considerable returns for our shareholders. Chesapeake, as the world's leading company in the shale oil and natural gas field, has accumulated abundant experience on drilling and completion in various U.S. shale plays with world-class partners. We are therefore very confident about this project's potential success."

Tudor, Pickering, Holt & Co. Securities Inc. was advisor to CNOOC. Jefferies & Co. Inc. was advisor to Chesapeake.