Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) has closed the acquisition of Columbia Natural Resources LLC and certain affiliated entities from West Virginia-based Triana Energy Holdings LLC for $2.2 billion in cash, the assumption of an estimated $75 million working-capital deficit and liabilities related to Columbia's prepaid sales agreement and hedging positions. Chesapeake financed the acquisition from cash on hand and through the issuance of senior notes and stock. Morgan Stanley & Co. Inc. and Credit Suisse First Boston LLC were advisors to Triana. The acquisition includes an estimated 2.5 trillion cubic feet of gas equivalent of proved, probable and possible reserves, comprised of 1.1 trillion equivalent of proved reserves. Columbia's reserves are estimated at 3.9 trillion equivalent, which is 56% more than Chesapeake will initially recognize. The difference is due to Columbia Natural's obligations in a gas-sales contract estimated at $750 million in remaining liability. Columbia's current daily net production is approximately 125 million equivalent, indicating a proved reserves-to-production index of 23 years. The properties are principally in West Virginia, Kentucky, Ohio, Pennsylvania and New York. After the preliminary allocation of $175 million of the $2.2-billion purchase price to Columbia's midstream gas assets being acquired and $500 million to the unevaluated portion of the 4.1 million net leasehold acres being acquired-3.5 million net acres in the U.S. and 0.6 million net acres in Canada-Chesapeake's acquisition cost for the 1.1 trillion equivalent of estimated proved reserves will be some $1.45 per equivalent, according to Chesapeake. Chesapeake estimates that its all-in cost of acquiring and developing the 2.5 trillion equivalent of reserves will be about $2.48 per thousand cubic feet of gas equivalent. Chesapeake has identified 1,316 proved undeveloped locations, 6,286 probable locations and 1,833 possible locations for a total of 9,435 undrilled locations, or an estimated drilling inventory of more than 15 years. Chesapeake now owns an internally estimated 14.3 trillion cubic feet equivalent of proved and unproved oil and gas reserves, comprised of 7.3 trillion cubic feet equivalent of proved reserves (92% gas; 100% onshore) and 7 trillion cubic feet equivalent of unproved reserves. The company intends to spend some $200 million per year to further develop the acquired properties. Aubrey K. McClendon, Chesapeake chairman and chief executive, says, "We are pleased to have closed the CNR acquisition yesterday for several reasons. First, we have acquired very significant land and gas resource inventories to complement our already very large land and gas resource inventories. Secondly, we are very enthusiastic about moving into the large, prolific and generally underexplored and unconsolidated Appalachian Basin. Third, we are also attracted to the value proposition of producing natural gas at a premium price to Nymex, rather than for the steep discount to Nymex that most other U.S. natural gas sells for today. In addition, we are eager to begin working in a large U.S. natural gas basin that shares many similarities to our stronghold in the Midcontinent." Triana was formed in 2001 by management and executives of Metalmark Capital LLC as a Morgan Stanley Capital Partners portfolio company.
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