Chesapeake Energy Corp. has closed $1.25 billion of perpetual preferred shares of its wholly owned, unrestricted subsidiary, CHK Utica LLC.

The subsidiary owns approximately 700,000 net leasehold acres within an area of mutual interest in the Utica Shale play in 13 counties primarily in eastern Ohio. Chesapeake has retained all the common interests in CHK Utica.

The closing completes a financial transaction led by EIG Global Energy Partners (EIG) and results in total proceeds of $1.25 billion of sales of CHK Utica preferred shares. As previously announced on November 3, 2011, EIG purchased $500 million of perpetual preferred shares in CHK Utica. The additional $750 million of preferred shares have been placed with: a co-investment vehicle managed by EIG consisting of limited partners and qualified EIG employees; GSO Capital Partners LP, an affiliate of the Blackstone Group; and Magnetar Capital, a private asset management firm.

Chesapeake retains an option exercisable prior to October 31, 2018 to repurchase the preferred shares for cash in whole or in part at any time that the valuation is equal to or greater than a 10% internal rate of return or a return on investment of 1.4x. Investors are also slated to receive a 3% overriding royalty interest in the first 1,500 net wells drilled on CHK's Utica’s leasehold.

Big step for Chesapeake

“Through terms of the financial transaction, Chesapeake is committed to drill a minimum of 50 net wells per year through 2016 and a minimum cumulative of a total of 250 net wells. We expect that the company will not have any foreseeable issues in completing its commitment as it anticipates a higher rig count than the required 10-rig drilling program that is required through the agreement. A big step for Chesapeake to have its Utica operations fully funded going forward,” said Global Hunter Securities analysts in a note to investors December 5.