Chesapeake Energy Corporation Announces Transaction With Canadian Oil And Gas Producer Pan East Petroleum Corp.
Thursday November 13, 9:22 am Eastern Time
Company Press Release
OKLAHOMA CITY, Nov. 13 /PRNewswire/ -- Chesapeake Energy Corporation (NYSE: CHK - news) today announced that it has entered into an agreement to purchase from Pan East Petroleum Corp. (TSE: PEC - news) 11.9 million treasury shares of Pan East's common stock at a per share price of $2.50 (Cdn) in a private placement. Based on Pan East's existing 48 million outstanding shares and Chesapeake's previous open market purchase of 100,000 Pan East shares, Chesapeake will own approximately 12 million shares, or 19.9%, of Pan East for an investment of $30 million (Cdn), or $22 million (US). The purpose of the private placement is to assist Pan East in financing its share of the exploration, development and acquisition activities under the joint venture described below. Chesapeake currently has no intention of increasing its ownership in Pan East.
Pan East is a Calgary-based exploration company that explores for high potential natural gas reservoirs in Devonian and Mississippian carbonate formations along the western edge of the Western Canadian Sedimentary Basin. Pan East's management team, led by President Richard A. Walls, Vice-President of Finance and Corporate Development Ron C. Wigham and Vice-President of Land John W. Elick, who collectively will own nine percent of Pan East's stock after the Chesapeake transaction, will continue to manage Pan East. In the near future, Chesapeake expects to nominate one member to Pan East's Board of Directors.
During the 12 months ended June 30, 1997, Pan East produced 5.5 billion cubic feet of gas equivalent (using the Canadian standard of a 10:1 conversion) and generated $4.6 million (Cdn) of operating cash flow on oil and gas revenue of $8.2 million (Cdn). Pan East's proven and probable reserves of oil and gas as of January 1, 1997 consisted of 1.2 million barrels of oil and 113 billion cubic feet of gas. The present value of these reserves (discounted at 10%) as of January 1, 1997 was $143 million (Cdn). During the four-year period ending December 31, 1996, Pan East's reserves and production grew by 2,400% and 1,500%, respectively. During the same four-year period, Pan East's finding costs were approximately $0.78 (Cdn) per Mcfe.
Nesbitt Burns Inc. and Donaldson, Lufkin & Jenrette Securities Corporation acted as advisors to Chesapeake and Peters & Co. acted as advisor to Pan East.
Chesapeake and Pan East Form Exploration and Property Acquisition Joint Venture
In addition to the private placement stock purchase, Chesapeake and Pan East have agreed to create a joint venture whereby Chesapeake will have the right to participate as a non-operator with up to a 50% interest in all drilling activities and acquisitions made by Pan East during the next two years. Chesapeake has agreed that its minimum drilling commitment during the joint venture period will be $15 million (Cdn). Both the private placement and joint venture are scheduled to close on or before November 30, 1997.
Pan East's inventory includes approximately 30 prospects that are scheduled to be drilled in 1998. The anticipated joint venture gross cost of those wells is approximately $70 million (Cdn). Pan East's properties are concentrated in the Kaybob South/Bigstone/Berland River and Strachan Deep areas of west central Alberta and in the Bullmoose/Sukunka area of the Grizzly Valley in northeast British Columbia, where Pan East has exposure to several hundred Bcfe of potential reserves.
In addition, Pan East owns 10.4% in certain key functional units of the Kaybob South No. 3 Gas plant (''K3'') in the Berland River Area. The K3 plant is one of the largest gas processing facilities in Canada and has the capacity to process up to 650 million cubic feet of gas per day, 58,000 bbls of natural gas liquids and 3,500 long tons of sulfur. Other owners in the K3 plant are Chevron, Amoco and Mobil.
Management Comment
Aubrey K. McClendon, Chesapeake's Chairman and Chief Executive Officer commented, ''We are very excited about this opportunity and look forward to the purchase of 19.9% of Pan East and the formation of our drilling and acquisitions joint venture. During the past two years, we have evaluated a number of Canadian opportunities and have concluded that Pan East's management team and exploration strategy are very compatible with Chesapeake's management team and business strategy. We have great respect for Pan East's management and look forward to helping them build a larger asset base in Western Canada.
Our joint venture is filled with an attractive backlog of drilling and acquisition opportunities and we look forward to beginning to capitalize on them in this winter's drilling season. We believe our strategic investment in Pan East represents a significant growth opportunity for Chesapeake's shareholders.''
Chesapeake Energy Corporation is an independent oil and natural gas producer headquartered in Oklahoma City. The company's operations are focused on exploratory and developmental drilling and producing property and corporate acquisitions in major onshore producing areas of the United States and Canada.
The information in this release includes certain forward-looking statements that are based on assumptions that in the future may prove not to have been accurate. Those statements, and Chesapeake Energy Corporation's business and prospects, are subject to a number of risks, including production variances from expectations, uncertainties about estimates of reserves, volatility of oil and gas prices, the need to develop and replace its reserves, the substantial capital expenditures required to fund its operations, environmental risks, drilling and operating risks, risks related to exploratory and developmental drilling, competition, government regulation, and the ability of the company to implement its business strategy. These and other risks are described in the company's documents and reports that are available from the United States Securities and Exchange Commission, including the report filed on Form 10-K for the fiscal year ended June 30, 1997.
SOURCE: Chesapeake Energy Corporation |
