Epsilon closes farm out agreement with Chesapeake Energy

Epsilon Energy (Epsilon) has closed its farm out agreement with Chesapeake Energy. The assets in the

In addition, Epsilon believes that its leasehold position will support the drilling of approximately 120-150 additional locations (60-75 net to Epsilon).

At closing Chesapeake Energy paid to the joint venture approximately $5m in cash and will earn a 50 per cent interest in Epsilon's upstream Marcellus shale assets by paying a further $95m over time by carrying the first $95m of Epsilon's 50 per cent share of leasehold, drilling, completing, equipping and gathering costs attributable to the prospect. The carry obligation is expected to be completed by August 1, 2012.

In the framework of the farm out agreement, Chesapeake Energy plans to spend a total of $195m developing the Highway 706 prospect.

Zoran Arandjelovic, executive chairman, president and CEO of Epsilon, said: "We believe this transaction creates tremendous value for our shareholders and we are very excited and looking forward to our partnership with Chesapeake. 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 McClendon, CEO of Chesapeake Energy, said: "We are very pleased to have now closed this transaction with Epsilon. Their 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."