Chesapeake Energy announces the sale of their Ohio Utica Shale for 2 billion

Chesapeake announced the sale of their Ohio Utica interests today after the market closed.

Chesapeake Energy Corporation (CHK) today announced that it has entered into an agreement to sell its interests in the Utica Shale operating area located in Ohio for approximately $2.0 billion to Encino Acquisition Partners, a private oil and gas company headquartered in Houston, Texas. The transaction, which is subject to certain customary closing conditions, including the receipt of third-party consents, is expected to close in the fourth quarter of 2018. The purchase price includes a $100 million contingent payment based on future natural gas prices and is subject to adjustment for certain customary items at or following closing. Chesapeake intends to use the anticipated net proceeds to reduce debt.

Transaction highlights:

  • $1.9 billion initial closing proceeds to be applied toward reduction of debt; up to $150 million reduction in annual cash interest expense
  • $450 million reduction of projected 2019 gathering, processing and transportation expense, for an expected improvement of approximately $0.50 per barrel of oil equivalent (boe); eliminates all future Utica Shalemidstream and downstream commitments of approximately $2.4 billion
  • Improves EBITDA by approximately $0.70 per boe in 2019, due to lower cash operating costs and improved oil differentials, assuming flat 2018 commodity prices
  • Expect organic replacement of divested EBITDA within one year, primarily driven by oil volume growth from the Powder River Basin (PRB)
  • 2019 oil production expected to grow approximately 10% from 2018, adjusted for asset sales, with additional oil growth anticipated for 2020
  • 2018 Outlook updated to reflect business performance year to date and impact of pending transaction

https://seekingalpha.com/pr/17227911-chesapeake-energy-corporation-...

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Permalink Reply by Dott on August 5, 2018 at 1:29pm

Indiana Smith,

Thanks for posting articles.  On another subject one of the articles state that the leaseholders in the lawsuit will have a do over and can choose their lease language concerning payment and deductions going forward.  It reads:

"Landowners could opt to be paid royalties based on a local published “in-basin” gas price, with no deductions. Or they could choose to allow Chesapeake to market the gas, at potentially higher prices, but pay a proportionate share of the post-production costs. Such a “net-back” arrangement is similar to the disputed method the company now uses to calculate payments." 

What will the leaseholders choose? Just curious as to the better outcome for them.  Does anyone know? The later option sounds like the "Market Enhancement Clause" many of us have in our leases now am I correct?

Permalink Reply by Indiana Smith on August 6, 2018 at 8:18am

Dott,

If I was given those two options, I would choose to be paid royalties on the published price with no deductions.

Someone else asked me to post the following analogy in reference to how Chesapeake operates:

Imagine that you are shopping for a new car.  You look in the newspaper and see an ad from a dealer named "Chesapeake Auto" featuring a brand new car for $10,000.  You go to this dealer and the car is perfect.  The salesman instantly spots you and like a vulture he swoops in.  He says that you can have this brand new car with no warranty for $10k.  Or you can pay $20k and we will give you a LIFETIME bumper to bumper warranty that covers every item including brakes, tires, engine, transmission, rust, ect. for as long as you or a family member is alive!!!!!  Chesapeake Auto will never charge you one cent for fixing it to make it like new again!!!

You have your lawyer look at this lifetime warranty that eliminates all future expenses.  He/she advises you that it is legitimate and is the best deal.  You go back to the dealer and sign the paperwork and hand over $20k.  Dealer gives you the keys and off you go. 

You don't even make it home and suddenly the engine quits.  Take it back to the dealer and he repairs it on the spot.  But before he gives you the keys again, he hands you a repair bill for $200.  You tell him that you purchased the LIFETIME warranty and there should be no charge.  He states that the charge is not for repairs but simply a standard fee and must be paid or you don't get your car.  Your lawyer assures you that you don't have to pay it, but Chesapeake Auto still won't give you your car back.  You pay the $200 because you need your car to get to work to earn money and not get fired.

This happens every month.  And every month you pay the bill so that you can get your car back.  Then one month you get a new bill for $6000.  The statement says that they made a mistake and should have been charging more each of the last 24 months.  Chesapeake Auto says not to worry, we will deduct $1000 per month from your paycheck until the bill is paid.

You finally get tired of this game and sue Chesapeake Auto to enforce the contract that they signed.  Chesapeake Auto's lawyers keep your lawyer in court for years as they use every trick and file every possible motion to delay the inevitable judgement against them.  And even after they agree to a settlement, they add a condition that states you can never sue them again if you cash this settlement check.

That is exactly how the real Chesapeake operates. 

Permalink Reply by David Allen Lilly on August 7, 2018 at 11:53pm

We have received the letter as well and I have a couple of questions.

If my consent is denied by me, what are the consequences to the sale ? I am guessing that Chesapeake only needs a certain, unknown to me, percentage of its landowners to consent to the sale. I don't know the upside to not signing and doubt there is a consequence.

I don't know how any of it even matters as it relates to what is most important to me, and that is timely, fair and accurate payment of my royalty according to the terms of my lease. Mortgages are often bought and sold, changing who manages them but not the actual terms and I would think this is what is happening here.

So what can Chesapeake do if enough consent to the sale is with held ? And what is the upside or downside to myself either way ?

Permalink Reply by Booger on August 9, 2018 at 4:02am

there is a discussion about this on another thread......i have an alov lease and in my lease it states;

"The rights and estate of any party hereto may be assigned from time to time in whole or in part and as to any horizon, subject to the written consent of the lessor. Lessor's consent shall not be unreasonably withheld, conditioned or delayed."

......i read this as - they need my consent, but i shall not withhold my consent.......doesn't seem to make much sense.

Permalink Reply by Indiana Smith on August 9, 2018 at 6:19am

The key word in this clause is "unreasonably".

As long as you have a valid reason to withhold consent, then you do not have to sign.  It would be up to a judge to determine if you are being unreasonable.  Some judges might agree that you have a valid reason if you show that Chesapeake is currently in breach of contract (not following the terms of the lease)....... 

I'm not a lawyer, so my comments are worth what you paid for.

Permalink Reply by Tusc-county-man on August 9, 2018 at 6:28am

It all means that the sale will go through

Encino will say " we will honor all contracts/leases"

So how/why could anyone have an issue with that....thats haw any Judge would see it.

You think a couple ( 100s) of land owners witholding their consent is going to stop this Sale? 

It is a done deal

Permalink Reply by David Allen Lilly on August 9, 2018 at 10:09am

I wonder the same, and at least figure it would take a pretty good conspiracy with many actors to cheat landowners in every way that Chesapeake has been accused of.

I know that there have been many times where people have made accusations about the oil and gas producers but when pressed for facts to investigate or verify the accusations there are many times where none can be given.

I am not defending any of the producers, but there were a lot of people who signed really, really bad leases that the producers used to take maximum advantage, and the state laws governing the entire matter could be a heck of a lot better and better enforced.

I suspect Pennsylvania is the worst, I think you live there, am I right ?

Permalink Reply by ray schmidt on August 9, 2018 at 10:25am
I agree that its a done deal, so why do I have to sign consent? my contract is done in 8 months, so they will have to resign then, i would rather lease with someone else anyway.pretty sure they wont have drill bit in ground as my lease states by then.wonder if they know how many leases they are going to have to renew in 8 months due to 8 year term being up?btw this is reply to tusc co man
Permalink Reply by ray schmidt on August 9, 2018 at 10:25am
I agree that its a done deal, so why do I have to sign consent? my contract is done in 8 months, so they will have to resign then, i would rather lease with someone else anyway.pretty sure they wont have drill bit in ground as my lease states by then.wonder if they know how many leases they are going to have to renew in 8 months due to 8 year term being up?btw this is reply to tusc co man
Permalink Reply by Tusc-county-man on August 10, 2018 at 6:37am

not sure why they need/would ask for your consent......a lawyer may know

I just think that logically, every landowners consent is not possible....can't ever get 3 people to agree on dinner!

Permalink Reply by ray schmidt on August 9, 2018 at 10:25am
I agree that its a done deal, so why do I have to sign consent? my contract is done in 8 months, so they will have to resign then, i would rather lease with someone else anyway.pretty sure they wont have drill bit in ground as my lease states by then.wonder if they know how many leases they are going to have to renew in 8 months due to 8 year term being up?btw this is reply to tusc co man
Permalink Reply by ray schmidt on August 9, 2018 at 10:25am
I agree that its a done deal, so why do I have to sign consent? my contract is done in 8 months, so they will have to resign then, i would rather lease with someone else anyway.pretty sure they wont have drill bit in ground as my lease states by then.wonder if they know how many leases they are going to have to renew in 8 months due to 8 year term being up?btw this is reply to tusc co man

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