Chesapeake Energy selling stake in Mississippi Lime play to Sinopec for $1.02 billion
BY SAABIRA CHAUDHARY
OKLAHOMA CITY -- Chesapeake Energy has agreed to sell a stake in its Mississippi Lime play in northern Oklahoma to Sinopec International Petroleum Exploration & Production Corp. for $1.02 billion in cash as the natural gas company aims to focus on developing its profitable liquids-rich plays.
"We are excited to announce the execution of our Mississippi Lime joint venture with Sinopec, which moves us further along in achieving our asset sales goals and secures an excellent partner to share the capital costs required to actively develop this very large, liquids-rich resource play," Chesapeake's Chief Operating Officer Steven C. Dixon said.
Sinopec--a Chinese oil company--is buying a 50% undivided interest in 850,000 of Chesapeake's net oil and natural gas leasehold acres. Chesapeake will get 93% of the acquisition price when the deal closes. Payment of the remainder will depend on certain customary title contingencies.
All future exploration and development costs in the joint venture will be shared proportionately between the two companies with no drilling carries involved. As the operator of the project, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the joint venture. The transaction will likely close in the second quarter.
Production from the assets, including Mississippi Lime and other formations, net to Chesapeake's interest and prior to Sinopec's purchase, averaged about 34 thousand barrels of oil equivalent per day in the fourth quarter.
Chesapeake, the country's second-largest gas producer after Exxon Mobil, has been hurt by a natural-gas glut that has caused prices to collapse and its revenue to shrink. Like many other energy companies, Chesapeake has been shifting its focus to more profitable liquids-rich plays from dry natural-gas plays as soaring production has contributed to weak natural-gas prices. For 2013, the company expects natural gas production to decline roughly 7% and liquids production to increase about 27%.
Earlier this month, Chesapeake said its fourth-quarter earnings fell 36% as the natural-gas company was hurt by debt-buyback expenses and other items that masked strong revenue growth.
And in December, the company inked two deals to sell assets, one under which it agreed to sell certain crude oil and condensate gathering assets in the Eagle Ford area of South Texas to Plains All American Pipeline for $125 million. And another under which it agreed to sell a substantial majority of its remaining midstream assets for about $2.16 billion in cash to Access Midstream Partners.
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