Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) plans to acquire the 18,000-acre North Block property in Johnson County, Texas, for $277 million in cash from privately held Hallwood Energy Corp. The acquired property is north of Hallwood's 30,000-acre South Block property, in which Chesapeake acquired a 44% working interest through its June 2002 acquisition of Canaan Energy Corp. The property has an estimated 135 billion cu. ft. of gas equivalent in proved reserves (100% gas; 15% proved developed; 14.8-year life), 145 billion equivalent in probable and possible reserves and net production of approximately 25 million equivalent per day from 31 vertical wells and 11 horizontal wells. Chesapeake has identified approximately 70 proved undeveloped and 90 probable and possible horizontal drilling locations on the 18,000-acre North Block. Including this acquisition, Chesapeake's proved reserves will increase to an estimated 4.6 trillion cu. ft. equivalent for 2004. Including $303 million of anticipated future drilling costs to fully develop the reserves, the all-in acquisition cost for the 280 billion equivalent in reserves will be $2.07 per thousand. In addition, Chesapeake has agreed to purchase Hallwood's North Block gas-gathering, compression and water-disposal assets for $15 million. The company plans to finance the acquisition using a portion of the proceeds from a $600-million private issue of senior notes. Closing is expected by mid-December. Hallwood was advised by Houston-based Albrecht & Associates Inc. Sterne Agee & Leach analyst Michael Bodino says "the wait is finally over." He foresees additional upside for reserve growth in Chesapeake's acreage, and an increase in current production from 25 million cu. ft. equivalent per day to 55 million by year-end 2005, and up to 85 million by the end of 2006. Following the transaction, Bodino increased his 2005 production estimates for Chesapeake from 408.4 billion cu. ft. equivalent to 423.5 billion. He also increased his earnings per share, CFPS and EBITDA forecasts. -Petroleum Finance Week