Chesapeake Energy To Sell Southern Marcellus & Utica Shale Assets

http://www.finanznachrichten.de/nachrichten-2014-10/31705900-chesap...

WASHINGTON (dpa-AFX) - Chesapeake Energy Corp. (CHK) has executed a purchase and sale deal to sell assets in the Southern Marcellus Shale and a portion of the Eastern Utica Shale in West Virginia to Southwestern Energy Co. (SWN) for aggregate proceeds of $5.375 billion. The transaction may close in the fourth quarter of 2014.

Chesapeake would sell nearly 413,000 net acres and about 1,500 wells in Northern West Virginia and Southern Pennsylvania, of which 435 are in the Marcellus and Utica formations, along with related property, plant and equipment. Average net daily production from these properties was around 56,000 barrels of oil equivalent or boe during September, comprising 184,000 Mcf of gas, 20,000 barrels of natural gas liquids and 5,000 barrels of condensate. 

As of December 31, 2013, net proved reserves associated with these properties were nearly 221 million barrels of oil equivalent or mmboe. 

Pursuant to this transaction, Southwestern would assume a part of Chesapeake's firm transportation and processing capacity commitments. Based on that capacity and expected future commitments, Southwestern's preliminary plans are to start with 4 to 6 rigs in 2015 and increase to 11 rigs by 2017. 

In addition, Southwestern Energy anticipates to drill for a minimum of 20 years maintaining that 11-rig pace. By the end of 2017, the reserve mix for the company is estimated to be nearly one third each for the Fayetteville, northeast Marcellus and the newly acquired West Virginia and Pennsylvania properties as compared to the roughly two thirds for the Fayetteville and one third northeast Marcellus today.

Looking ahead, Chesapeake expects full-year production guidance for 2015 to remain in the range of 7-10% growth from 2014 levels adjusted for asset sales.

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Permalink Reply by Dexter Green on October 16, 2014 at 4:29am

Well.  That sort of fixes CHK's debt issues.

Permalink Reply by Philip Brutz on October 16, 2014 at 4:39am

http://www.bloomberg.com/news/2014-10-16/chesapeake-to-divest-appal...

Chesapeake Gains Most Since 2008 on Biggest Shale Sale

By Joe Carroll and Jim Polson  Oct 16, 2014 10:40 AM ET

Chesapeake Energy Corp. (CHK) surged the most in almost six years after announcing plans to sell natural gas and oil shale fields to Southwestern Energy Co. (SWN) for $5.4 billion in its biggest-ever divestment.

The transaction includes 1,500 wells and drilling rights across 413,000 acres in the southern Marcellus Shale and eastern Utica Shale in Pennsylvania and West Virginia, Oklahoma City-based Chesapeake said in a statement today.

Chief Executive Officer Doug Lawler is exiting some shale prospects to devote drilling crews and rigs to oil-rich formations that have delivered rates of return in excess of 20 percent. Before today, Chesapeake had sold or spun-off more than $3 billion in gas fields, office buildings, pipelines and rigs this year, as it unwinds deals done by former CEO Aubrey McClendon.

“Today’s announcement marks a major step in Chesapeake’s transformation and a dramatic improvement in our financial strength as we seek to maximize value for our shareholders,” Lawler said in the statement.

The transaction, which is expected to close before the end of the year, won’t impact Chesapeake’s production growth targets, Lawler said. Chesapeake, which before today had lost 31 percent of its value this year, climbed 12 percent at 10:17 a.m. in New York, after earlier rising to $20.44 for the biggest intraday gain since Dec. 10, 2008.

Southwestern tumbled as much as 9.9 percent to $32.15 for the largest intraday slump since September 2011 as investors punished the Houston-based company for paying a premium that UBS Securities LLC said was 54 percent more than Chesapeake’s assets were expected to fetch.

Reserves Boost

For Southwestern, the transaction represents the first major foray into oil-rich shale for a company that has been almost exclusively focused on gas production. Wells that are part of the deal produce the equivalent of 56,000 barrels of crude a day, 45 percent of which is oil and so-called gas liquids such as propane. The acquisition also is Southwestern’s largest-ever deal, according to data compiled by Bloomberg.

The purchase will increase Southwestern’s reserves by one-third to the equivalent of 890 million barrels of crude at a cost of about $24 per barrel.

“We think the sale is transformational for both parties,” Scott Hanold, an analyst at RBC Capital Markets, said in a note to clients today.

A shortage of gas-processing plants and pipelines in the Appalachian region could delay Southwestern’s plans to expand output from its new assets. Those bottlenecks should ease in the coming years as more infrastructure is added, Hanold wrote.

Dismantling Empire

In an internal e-mail today, Lawler announced plans for a town hall-style meeting with employees on Oct. 20 to discuss the impact of the sale and long-term growth plans. Senior managers and human resources executives have already met with employees at the affected divisions to talk about the transition to Southwestern, he said in the e-mail.

Chesapeake announced plans in July to expand in the Rocky Mountains amid Lawler’s campaign to reduce costs, unload unprofitable gas fields and untangle complex financing arrangements created during the reign of his predecessor.

Since becoming CEO two months after McClendon’s dismissal in April 2013, Lawler hasoutperformed the average gas and oil production estimates of analysts in quarterly Bloomberg surveys.

Southwestern expects to sell equity and debt before closing to finance the transaction. Bank of America Corp. advised Southwestern and will provide a $5 billion bridge loan.

Statoil ASA (STL), co-owner of some of the West Virginia and Pennsylvania assets, has 30 days to acquire the stake at the agreed price, Southwestern said.

(Southwestern scheduled a conference call for 11 a.m. New York time. To listen, dial 877-407-8035 in the U.S. and 201-689-8035 from overseas.)

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.netJim Efstathiou Jr., Robin Saponar

Permalink Reply by Dexter Green on October 16, 2014 at 4:45am

"Southwestern tumbled as much as 9.9 percent to $32.15 for the largest intraday slump since September 2011 as investors punished the Houston-based company for paying a premium that UBS Securities LLC said was 54 percent more than Chesapeake’s assets were expected to fetch."

I'm surprised it's only a 10% drop.  During a global slowdown that's culling the energy sector herd SWN decided to pay a flat-out stupid premium for acreage in a region that is getting worse pricing than any other basin in the country.  Bravo to CHK for once again finding the greater fool.  They seem to be better at that than anything else.

Permalink Reply by wyalusing jim on October 16, 2014 at 8:07am

"Well.  That sort of fixes CHK's debt issues."

almost...or a little over half of it. it sure makes the chk doomsayers look silly right about now anyway. there were always plenty of assets to settle them up, and 77 energy is still up for sale which will probably take care of the rest of their debt.

no worries...

wj

Permalink Reply by james david lamm on October 17, 2014 at 11:34am

jim  sse (77 energy) no longer part of chk with the recent spin off. they are now a stand alone company. although they do fracking for chk, they are working for many other producers also and seem to be doing well.  

Permalink Reply by wyalusing jim on October 17, 2014 at 1:02pm

yes james, I got my shares when they spun it off.

but doesn't chk still have their shares too?

wj

Permalink Reply by Jim Litwinowicz on October 16, 2014 at 9:05am

So SW paid too much.  There were 1,500 wells in the deal. If each well is worth just $3 million (it takes 6-8 mil to drill a well) considering the average age and decline rate, that comes to $4.5 billion just for the wells. The deal also includes pipelines and processing facilities of considerable but unknown value.

I know people were expecting the assets to go for a lower price because CHK is desperate but it seems to me that SW got considerable value in return.

Permalink Reply by Dexter Green on October 16, 2014 at 2:26pm

"There were 1,500 wells in the deal. If each well is worth just $3 million (it takes 6-8 mil to drill a well) considering the average age and decline rate, that comes to $4.5 billion just for the wells. "

Can't do that sort of back-of-the-envelope accounting on this one.  They give you the total production from those wells.  I modeled the NPV assuming a very generous decline (since they are all at different stages of decline) and they're worth about $1.2 billion.  

Permalink Reply by Jim Litwinowicz on October 16, 2014 at 3:04pm

So your saying each well is worth on average $800,000?  With the pad, access road, pipe, and equipment.....plus the fact that a well means the lease will run for 30 yrs or more and HBP the land....they are worth more than that even with low production.  With a well or two or three tying up 500 to 1200 acres for decades thats a lot of bonus money that will never have to paid.

Permalink Reply by Bluflame on October 17, 2014 at 1:36am

Hello Dexter,

  Where this acreage is located, there exists the possibility of a "triple play", with both Utica & Upper Devonian formations added to existing Marcellus wells maybe from existing pads. Unlikely to happen soon considering recent commodity prices, but hard to believe prices will remain at the current low level, medium to long term. Finally, most of the acreage is wet gas and four ethane crackers are on the drawing boards within shouting distance of SW's acquired acreage.

   IMHO....it could end up as a win-win for all parties including landowners who will see development activity sooner with SW.

BluFlame

Permalink Reply by Harry E. Rose on October 16, 2014 at 2:46pm
Then why did SW pay $5B?
Permalink Reply by Frank Walker on October 16, 2014 at 9:11am

Congratulations to landowners involved.  Buy a lottery ticket.  This is your lucky day!

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