British oil company BP PLC said Tuesday that its US unit plans to buy a 25-per cent stake in Chesapeake Energy Corp.'s Fayetteville Shale assets in Arkansas for $1.9 billion. High prevailing energy prices have recently made drilling from shale deposits profitable, something earlier considered as not worth the time and money.

BP said that a letter of intent has been signed for the deal, which comes just a month after BP America bought Chesapeake's Arkoma Basin Woodford Shale assets in Oklahoma for $1.7 billion.

"Development of these resources, along with our leading position in coal bed methane production, and our extensive tight gas plays throughout North America, will enhance BP's position as a leader in 'unconventional' gas technology…This transaction, when combined with our recent Woodford acquisition, establishes a material position in the two attractive shale plays in the Arkoma Basin," said BP Chief Executive of Exploration and Production Andy Inglis.

"Together with our substantial position in the emerging Haynesville Shale play in East Texas, BP has made a strategic entry into three top tier shale plays in North America and established potential shale resources of 1 billion barrels oil equivalent net to BP," Inglis added.

"We believe this transaction creates substantial value for both companies, highlights the attractiveness and significant value of Chesapeake's assets and confirms the structural appeal of our innovative joint venture structures," said Chesapeake CEO Aubrey K McClendon.

The deal is subject to "execution of mutually acceptable definitive documentation," which the companies expect to occur within the next week. They anticipate closing the deal later this month.

Oil majors are scrambling to target fuel from rock formations that are more costly to exploit than traditional fields. Such so-called shale plays were made more profitable this year as gas prices outpaced crude oil. Royal Dutch Shell Plc, BP's larger rival, recently completed the purchase of Canadian shale gas producer Duvernay Oil Corp. for $5.8 billion. (See: Royal Dutch Shell to buy Canada's Duvernay Oil Corp. for $5.87 billion)

Chesapeake's Fayetteville shale assets in Arkansas produce some 180 million cubic feet of natural gas equivalent per day. They "include about 540,000 net acres of leasehold, which the companies believe could support the drilling of up to 6,700 future horizontal wells," their statement said.

Of the total land, BP will hold 135,000 acres and Chesapeake 405,000. BP will pay $1.1 billion cash at closing and $800 million during 2008 and in 2009. Chesapeake plans to continue acquiring leasehold in the Fayetteville Shale play and BP will have the right to a 25 per cent participation in any such additional leasehold, the companies said.

At the same time, competition for gas shale assets in the Louisiana and Texas-based Haynesville formation is increasing. In July, Chesapeake agreed to sell to Plains Exploration & Production Co., a Houston-based oil and gas producer, a 20 per cent stake in the Haynesville Shale joint venture for more than $3 billion.

Shell and EnCana Corp., Canada's largest gas producer, are developing a shale-gas project in Haynesville. The Hague-based Shell holds 50 per cent of the venture, which covers 3,000 acres, chief financial officer Peter Voser said in July.