Chesapeake (NYSE: CHK) Selling $6.9 Billion to Cover Debt

Written By Brianna Panzica

Posted September 12, 2012

Chesapeake Energy (NYSE: CHK) has been under fire lately. Between CEO Aubrey McClendon’s misuse of company securities and the company’s collusion with Encana Corp. (NYSE: ECA) to avoid land bidding in Michigan, shares plummeted dramatically from April to June.

Then it was revealed that the company was facing a $10 billion funding gap for this year, due in part to the low prices of natural gas.

Since then, Chesapeake has decided to begin a shift away from natural gas production and back to oil, the more profitable sector. Of course, recovering its lost costs and paying back its $14.33 billion in debt can’t be quickly done by just switching sectors. So the company has been selling assets.

The company set a goal of selling between $13 and $14 billion in assets to cover its $4 billion in term loans and $10 billion funding gap. It’s been successful in securing some sales, but today the company announced that a new wave of sales has brought it very close to its goal.

A press release today revealed that the company recently solidified a number of transactions totaling $6.9 billion.

Chief executive McClendon said:

“We are pleased to announce further progress towards our asset sale goals for 2012. The net proceeds of approximately $6.9 billion from the sales discussed today are in addition to the $4.7 billion of sales previously closed in the 2012 first half and will bring our 2012 year-to-date sales to $11.6 billion, or approximately 85% of our full-year goal of $13-$14 billion, which we expect to achieve by year end.”

The transactions include a sale of a large number of Chesapeake’s Permian Basin properties to Royal Dutch Shell (NYSE: RDS.B), Chevron (NYSE: CVX), and EnerVest Ltd. for $3.3 billion.

The Permian Basin properties represent 21,000 barrels of liquids and 90 million cubic feet of natural gas per day, roughly 5.7% of Chesapeake’s total second quarter production.

It is also selling its midstream assets for a total of $3 billion.

Of this, $2.7 billion will be from Global Infrastructure Partners, which had earlier agreed to buy some midstream assets, and an additional $300 million will come from several other companies for the Mid-Continent midstream assets and Eagle Ford oil gathering assets.

The final $600 million will be from four different sales of Utica Shale assets.

According to McClendon:

“These transactions are significant steps in the transformation of our company’s asset base to a more balanced portfolio among oil, natural gas liquids and natural gas resources and production by focusing on developing and harvesting the value embedded in the 10 core plays in which Chesapeake has built a #1 or #2 position.”

The company is holding on to its Mississippian Lime assets, where it recently announced that it was looking for a joint venture partner and that more information would be released in the coming months.

Chesapeake is also keeping roughly 470,000 net acres in the Midland Basin (part of the Permian Basin), which it will later sell or develop, and 1.3 million net acres in the Utica Shale, where it has a joint venture with Total (NYSE: TOT).

Shares were down 0.95% on Wednesday afternoon to $19.91. Though McClendon assured investors that sales were right on track, some analysts were expecting higher prices.

From Reuters:

“Is this a fire sale? Maybe, maybe not. But it’s certainly less than (Chesapeake) would have liked us to think previously,” [Argus Research analyst Phil] Weiss said. “When you look at the acquirers – Chevron and Shell – I certainly wouldn’t expect them to overpay.”

Eliecer Palacios, an energy-sector specialist at Maxim Group, was more positive. He told the Wall Street Journal:

“The market is not really excited about the price, but overall it’s positive for them. They’re going according to plan.”

That’s all for now,

Brianna Panzica

follow basic@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.

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