By Denver Business Journal

Chinese oil and gas giant Cnooc Ltd. has made a nearly $1.3 billion investment in the fledgling Niobrara oil play in Colorado and Wyoming â¿¿ an investment expected to bring more drilling rigs and jobs to the area.

Cnooc (NYSE: CEO), based in Hong Kong, through a subsidiary named Cnooc International Ltd., bought a one-third interest in the 800,000 net acres of mineral rights that Chesapeake Energy Corp. (NYSE: CHK) has leased in the Denver-Julesburg (DJ) and Powder River basins in northeastern Colorado and southeastern Wyoming. Chesapeake is based in Oklahoma City.

⿿We think this is a very, very positive step forward for jobs creation and development of this basin,⿝ Chesapeake spokesman John Dill said Monday, the day after the two companies announced the deal. ⿿The decision is about how fast this is going to be drilled.⿝

Cnooc paid $570 million for the one-third share, and also agreed to pay 67 percent of the companyâ¿¿s drilling costs â¿¿ up to $697 million, which Chesapeake said it expects to hit by the end of 2014. The deal is expected to close in the first quarter 2011.

Analysts pegged the dealâ¿¿s value at about $4,000 per acre, and said it was a good sign for the Niobrara given that the basin is still being explored.

Chesapeake said itâ¿¿s currently operating 16 wells on its acreage. The wells, when first completed, produced up to 1,000 barrels of oil and 3 million cubic feet of natural gas per day. Dill said Chesapeake hasnâ¿¿t yet drilled a well in Colorado.

Chesapeake said itâ¿¿s currently running five rigs on its Niobrara acreage and â¿¿ with the new investment â¿¿ expects to double that number to 10 rigs by the end of 2011, and have 20 rigs running by the end of 2012. Each drilling rig typically carries a crew of about 25 people.

Aubrey K. McClendon, Chesapeake⿿s CEO, said in a statement that the deal will create ⿿thousands of high-paying jobs in the U.S., and the payment of very significant local, state and federal taxes.⿝

Chesapeake said it and Cnooc expect to produce the equivalent of up to 5 billion barrels of oil from the region.

Dill said Cnooc is a minority partner in Chesapeakeâ¿¿s Niobrara interests and that he doesnâ¿¿t expect Chinese engineers will be working in the field.

⿿They⿿re a minority partner providing capital, and Chesapeake is the owner and operator,⿝ Dill said. ⿿We don⿿t anticipate much, if any, Chinese presence in Colorado or Wyoming. There⿿s no technology transfer; no training program. It⿿s a straightforward business deal.⿝

In October 2010, Chesapeake and Cnooc signed a $1.08 billion deal for one-third of Chesapeakeâ¿¿s 600,000 acres in the Eagle Ford, Texas, shale basin. That investment was the first major investment by a Chinese company in oil and gas operations in the United States.

Copyright 2011 American City Business Journals

Copyright 2010