By Saabira Chaudhuri 
 

Gastar Exploration Ltd. (GST) has agreed to acquire certain assets in Oklahoma from Chesapeake Energy Corp. (CHK), buyback Chesapeake's entire stake in Gastar, and settle all litigation with the natural gas producer for $85 million.

The acquisition--of proven reserves and undeveloped leasehold interests in Kingfisher and Canadian counties, Oklahoma--includes drilling rights for about 157,000 net acres that adjoin Gastar's existing Mid-Continent acreage and about 2.8 million barrels of oil equivalent of proven reserves. The purchase agreement includes 176 producing wells--half to be operated by Gastar--with an estimated present value of proved reserves of $32.4 million.

"This acquisition of undeveloped acreage and producing properties in our Mid-Continent area will provide us a tremendous opportunity to secure a much larger position in what we believe has the potential to be a highly prolific new oil play," Gastar Chief Executive J. Russell Porter said. "Based on existing data, nearly half of the acquired acreage lies within what we expect to be the most prospective area for horizontal drilling of the Hunton Limestone formation."

The transaction is expected to close on or before June 7 of this year. The property purchase will be effective Oct. 1, 2012.

Gastar, a natural gas and oil producer and developer focuses on unconventional reserves, such as shale resource plays. The company is currently pursuing the development of liquids-rich natural gas in the Marcellus Shale in the Appalachia area of West Virginia and, to a lesser extent, central and southwestern Pennsylvania.

Monday, the company also said it would buy back about 9.9% of its shares from Chesapeake--representing the natural gas producer's entire stake in Gastar--at a price of $1.44 a share, an 18% discount to Thursday's closing price.

The company also said that it and Chesapeake have agreed to settle all current litigation between the two companies, conditioned upon the closing of the stock purchase.

Chesapeake filed a lawsuit against Gastar in October in the U.S. District Court for the Southern District of Texas seeking rescission of certain 2005 transactions with Gastar and reimbursement of additional well costs stated to have been expended by them.

Gastar noted that the closing of the proposed property acquisition, stock repurchase and settlement for $85 million depends on the satisfaction of customary closing conditions and delivery of the total acquisition purchase of $75.2 million and stock repurchase price of $9.8 million.

Gastar noted that it will fund the deals through its revolving credit facility, proceeds from the possible sale of East Texas assets and the issuance of debt or preferred stock. After the deals close, Gastar also intends to pursue a joint venture partner for the new acreage to reduce debt and help fund its planned exploration and development program.

Shares of Gastar closed Thursday at $1.76, while those of Chesapeake closed at $20.41. Both company's stocks were inactive premarket.

Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com

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