Association responds to Ohio tax study

Association responds to Ohio tax study

Columbus

The Ohio Business Roundtable’s analysis of Gov. John Kasich’s proposal to increase the severance tax on oil and natural-gas producers throughout the state is based on several flawed assumptions.

The study, conducted by Ernst & Young, drastically underestimates the up-front cost of developing a horizontal well.

The cost of an average horizontal well in Ohio is between $8 million and $12 million, far more expensive than the report’s assumption of $4 million per well.

The report also assumes that an average Ohio well will produce 90,000 barrels of natural-gas liquids in the initial year of operation. Based on actual production of horizontal wells in Ohio to date, it could take years for the average well to produce that amount.

The roundtable’s analysis also fails to take into account the tax abatements offered in many states and the approximately 6 percent personal- income tax rate paid by Ohio’s landowners and oil and gas producers.

Chesapeake Energy increases loan size

OKLAHOMA CITY

Chesapeake Energy Corporation (NYSE:CHK) announced today that it has increased the size of a previously announced unsecured term loan from Goldman Sachs Bank USA and affiliates of Jefferies Group Inc. from $3 billion to $4 billion based on strong investor demand.

The loan was syndicated to a large group of institutional investors and priced at 97 percent of par. The net proceeds of the loan to Chesapeake, after customary fees and syndication costs of approximately $3.8 billion will be used to repay borrowings under the company’s existing corporate revolving credit facility and for general corporate purposes.

The loan carries an initial variable annual interest rate through Dec. 31 of LIBOR plus 7 percent, which is currently 8.5 percent given the 1.5 percent LIBOR floor in the loan agreement. The loan, which ranks pari passu with Chesapeake’s outstanding senior notes, matures Dec. 2, 2017, and may be repaid at any time in 2012 without penalty at par value.

Chesapeake expects to use a portion of the proceeds from planned asset sales to repay the loan in full before the end of 2012.

Giving effect to the increase in the size of the loan, the company currently has more than $4.7 billion of liquidity, including unrestricted cash on hand and available borrowing capacity under its revolving bank-credit facilities.

Aubrey K. McClendon, chairman and chief executive officer, said, “We appreciate this strong vote of confidence from investors. As discussed in yesterday’s conference call, this will give us greatly enhanced financial flexibility to execute our planned asset sales from a position of strength and to complete our transformation from a natural-gas-focused producer to a more balanced liquids-focused producer.”

BP announces new contracts

BP announced that it has signed two production-sharing contracts with the Government of the Republic of Trinidad and Tobago.

The two deep-water exploration blocks are located approximately 300 kilometers from the North East coast of Trinidad. BP was awarded blocks 23(a) and TTDAA 14 in the 2010/11 deep-water competitive bid round in July 2011, with a 100 percent working interest.

“These frontier blocks are over a new exploration area for BP and the country. We are excited to explore for new resources in this under-explored deep-water region” said Norman Christie, president, BP Trinidad and Tobago. “With these awards, we are pleased to see the confidence that the government of Trinidad and Tobago continues to place in BP.”

BP’s Trinidad operations account for more than half of Trinidad and Tobago’s natural-gas production and 12 percent of BP’s global production. The awards continue to strengthen the significance of Trinidad and Tobago in BP’s global portfolio.