Wednesday, September 12, 2012

Chesapeake Energy Sells $7 Billion in Assets To Pay Down Debt

Chesapeake Energy Corp. is selling the vast portion of its land and infrastructure in west Texas for nearly $7 billion as the company unloads debt and shifts more of its focus to drilling for oil, rather than natural gas. The assets in the oil and gas-rich Permian Basin are being sold in a series of deals to Royal Dutch Shell PLC, and Chevron Corp., and in a previously announced sale to affiliates of EnerVest Ltd.

Chesapeake is struggling under an enormous debt load accumulated in a rush to acquire land and other assets in recent years as new technology gave drillers access to enormous reserves of natural gas held in shale and other formations under several U.S. states.  Chesapeake and other drillers found and developed so much new natural gas that the price collapsed, decimating profits — and the ability to pay down debt.

The Oklahoma City company is trying to wipe $14 billion in debt off its books this year and the sale, announced Wednesday, brings it close to achieving that goal, the company said. Assets sales now total $11.6 billion for the year.  The company may have to sell more assets than it expected, or cut back drilling operations elsewhere.

Drillers are shifting their focus to oil, because oil prices have remained high. It is much easier to transport oil than natural gas, so oil prices reflect global demand.

The land and infrastructure that Chesapeake is selling produced approximately 21,000 barrels of oil and other liquids and 90 million cubic feet of natural gas per day in the second quarter, or approximately 5.7 percent of Chesapeake’s production.

Chesapeake plans to sell most of its pipeline and storage assets to Global Infrastructure Partners for about $2.7 billion. That includes gathering and processing systems in the Eagle Ford, Utica, Haynesville and Powder River Basin Niobrara shale plays.

Chesapeake says it has also sold or entered into additional deals to sell pipelines and other assets that are expected to generate proceeds of about $300 million.  Other deals in the Utica Shale should bring in about $600 million. Once the transactions close, Chesapeake will still own about 1.3 million net acres of leasehold in the Utica Shale. Chesapeake is keeping about 470,000 net acres of undeveloped leasehold assets in the Midland Basin to either sell at another time or develop.  (Wash Post, 9/12/2012)

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