As Chesapeake Energy (CHK) seeks to shore up its cash position by taking on a JV partner for its Marcellus shale, a strange, but true back story may be hurting the company's chances. The consummate land man, Aubrey McClendon, might just have outdone himself.

The company's latest investor presentation gives an implied value of $7,500/acre for its 1.8 mm acres of Marcellus leasehold (US $13.5B). So, a 25% share would be worth $3.4B. On the basis of the previous JV deals, a portion of this amount would be in cash with the balance delivered over time in the form of a drilling cost carry. According to the presentation's tables, these JV proceeds combined with the proceeds from sales of some producing properties in Oklahoma and South Texas are projected to raise $2.5B to $3.0B. So, $1.7B from the Marcellus would seem reasonable and, thus, a critical piece of the 12/31/08 Ending Cash forecast of $3.5B.

Chesapeake Energy (CHK) announced after the close yesterday that they will offer 25 million common shares with the customary 15% over allotment. Net proceeds from the offering will be used to temporarily repay outstanding indebtedness under its revolving bank credit facility which it anticipates re-borrowing from time to time to fund its recently announced drilling and leasehold acquisition initiatives and for general corporate purposes.

Take a look at the capital flows (pro forma) since the end of last quarter:

Dominion Resources (D) has agreed to assign its Marcellus rights to 205,000 acres to privately held Antero Resources of Denver, Co. for $552,000 million.

Considering the accompanying 7.5% royalty override to Dominion, this transaction represents the highest amount paid to any rights holder for access to the play. The previous high price for substantial acreage was XTO's (XTO) $600 million deal for Linn Energy's (LINE) 152,000 acres in the same Southwest PA/Northern WV region but that deal was an outright purchase of all rights and existing production and included $50 million of infrastructure.

The last year a Canadian hockey team won the cup (Canadiens '92-'93) was the year that Talisman Energy (TLM) was formed.  While US hockey teams have been skating into the back door and snatching ole Lord Stanley for those fifteen years, the $US 24 billion Canadian gas producer has been skating into the US and snatching up a very nice chunk of the Marcellus shale.

While doing some background work for the recent Talisman Energy/Hallwood announcement, I found the company listing a substantial 640,000 acre position in the Marcellus play. This makes them the #3 holder behind Chesapeake (CHK) and Range (RRC). According to Talisman's June presentation, most of the acreage spans the NY-PA border with some in southwestern PA around Range Resources' highly successful horizontal completions. Furthermore, Talisman's Fortuna Energy unit [FEI] is heralded as the #1 producer of natural gas in New York state indicating that the infrastructure critical to developing the Marcellus is already in place.

At the Master Limited Partnership Investor Conference in NY yesterday morning, Atlas (ATN) President & COO, Richard Weber, discussed the "Sweet Spot" position his company has in the Marcellus shale in southwestern Pennsylvania. The fundamental reason is that the shale in the area is characterized by a very desirable .6 pressure gradient which is providing the verticals that they've completed with the strongest recovery numbers in the entire play. He also noted that coincident with that "overpressure" is a greater degree of natural fracturing.

Just following up on Aubrey McClendon. On Monday, May 19, Chesapeake Energy (CHK) announced offerings of $1.2b in notes and convertibles. Tuesday, as announced, in addition to pricing the $800mm of 10 year notes, they also priced the $500mm of contingent convertible paper but then, presumably on the way to the bank, decided to change it to $1.2b.

Aw shucks....what the heh...we'll find somethin' to do with it!

Late Monday, Chesapeake Energy (CHK) announced the placement of $500 million of contingent convertible senior notes due 2038 and $800 million in senior notes due 2018. Chesapeake intends to use the net proceeds from the offerings to fund the redemption of its 7.75% Senior Notes due 2015, to repay outstanding indebtedness under its revolving credit facility, and for general corporate purposes.