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Chesapeake energy sells some shale assets

BY DANIEL GILBERT

Chesapeake energy said it would sell a portion of its oil and gas holdings in south Texas and northern Louisiana to Exco Resources for about $1 billion, a move that should enable the natural gas giant to pay for its operations without taking on more debt.

With the sale Chesapeake will have raised $3.6 billion this year from unloading assets. That covers the Oklahoma City based company' s $3.5 billion gap between its planned spending and cash flow, but it will need to sell more assets before it can pare debt.

Additional asset sales contemplated for later this year may reduce long term debt and further enhance our financial liquidity Doug Lawler, Chesapeake' s Chief Executive, said in a statement.

Chesapeake helped pioneer the American energy boom, but low gas prices have left its balance sheet in tatters. The company has been shedding assets to raise cash as it focuses on more profitable oil production and in paying down debt.

Tim Rezvan, an analyst at Sterne Agee, said Chesapeake' s haul from the sale was underwhelming but positive strategically. "The takeaway from this news is that the company is executing toward its 2013 asset sale target with minimal cannibalization of its production stream" he said in a research note, observing that the company was selling relatively little existing production that would erode its cash flow.

Dallas based Exco, which like Chesapeake has been reeling from low natural gas prices, expands its position in the gas fields of Louisiana' s Haynesville Shale and acquires a foothold in the oil rich Eagle Ford Shale in Texas.

Exco said it would use its existing credit to buy the Haynesville properties but is required to offer up to 50% of them to an affiliate for BG.

For the Eagle Ford assets, Exco said it secured new financing from J.P. Morgan for $1.6 billion and will partner with private equity firm Kohlberg Kravis Roberts & Co to drill them.

These acquisitions are consistent with our strategy of targeting opportunities in both existing core areas and new plays said Exco Chief Executive Douglas Miller.

The 55,000 acres Chesapeake is selling in the Eagle Ford represent a small portion of what the company has said it would sell. Chesapeake owns drilling rights to about 485,000 acres, and executives said in May it was only likely to retain about 250,000 acres.

The price Chesapeake obtained from its Haynesville acreage struck some analysts as low. Tudor, Pickering, Holt & Co said in a research note that the deal price set a "low watermark" for the value of production from the Haynesville.

Dow Jones Newswires

07/04/2013

 

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