Chesapeake (NYSE:CHK) Sells Marcellus Acreage

Brian Hicks

Written By Brian Hicks

Posted May 1, 2013

Chesapeake Energy Corp. (NYSE: CHK) continues its determined streak of asset sales, with its latest deal struck with Houston, Texas-based Southwestern Energy Co. (NYSE: SWN).

shale gas 19The roughly 162,000 acres in Pennsylvania’s Marcellus Shale that Chesapeake sold off is worth around $93 million. The 17 natural gas wells in the included acreage presently produce around 2 million cubic feet per day. The details of the deal are to be wrapped up around the middle of this month.

From the Sacramento Bee:

“2013 is already proving to be an exciting year for Southwestern Energy,” stated Steve Mueller, President and Chief Executive Officer of Southwestern Energy. “This acquisition of approximately 162,000 net acres is near our existing position and provides Southwestern with even greater exposure to a world-class resource where we can further showcase our operational strengths. The key acreage is located in Susquehanna, Wyoming, Tioga and Sullivan counties. Current net production from these properties is approximately 2 MMcf per day from 17 gross wells (1.2 net wells). Upon closing of this transaction, our acreage position of approximately 337,000 net acres in the Marcellus strengthens our ability to provide future double-digit production and reserve growth.”

Chesapeake sold off assets worth more than $7 billion last year, and the company is likely to sell an equal amount through this year.

Chesapeake Asset Sell-off

Earlier in April, Chesapeake reached a $75.2 million deal with Gastar (NYSE: GST), selling proven reserves and general leases in Oklahoma. And before that, the company struck a $1.02 billion deal with Sinopec of China involving half of Chesapeake’s Mississippi Lime interests.

In 2012, the company had another major deal with Access Midstream Partners LP (NYSE: ACMP) worth around $2.16 billion and involving most of Chesapeake’s pipeline and processing assets.

Southwestern, meanwhile, has gained a total of 337,000 net acres in the Marcellus Shale thanks to this deal with Chesapeake. The company suffered through most of last year due to falling natural gas prices, but the Fayetteville and Marcellus holdings continue to prove worthwhile.

Revenue for Q4 was higher than expected, though there was a net loss. This trend has been spreading wide, and it has also affected Chesapeake. Part of its asset sales is intended to decrease natural gas holdings and turn focus toward liquids-based production and development.

All Hail the Marcellus Shale

I needn’t reiterate the fact that the U.S. is in the middle of an ongoing shale revolution. It’s benefited our natural gas supplies enormously, and it has done wonders for U.S. production of petroleum products generally.

The U.S. is expected to overtake Saudi Arabia for oil production in a few years, and we’re also expected to become net energy independent shortly. Natural gas prices here are 3 to 4 times less expensive than in Europe or Asia. And, in fact, U.S. energy companies are lobbying the government to gain approval for export terminals that’ll allow them to export natural gas to the hungry markets in Europe and Asia.

Power plants and utilities are increasingly considering switching over to natural gas, abandoning the far more polluting coal. Shale gas production has increased by over 300 percent in just four years—between 2007 and 2011.

Since 2011, in fact, production from the Marcellus has increased by twofold to hit around 7 billion cubic feet a day. And estimates for the Marcellus Shale’s reserves just keep growing.

This is great news for so many companies in so many industries. From UPS (NYSE: UPS) to AT&T (NYSE: T), companies are switching their corporate fleets over to compressed natural gas as a fuel source.

And the Marcellus Shale, which stretched from New York all the way to Virginia, is quite possibly the longest continuous hydrocarbon formation in the world. The Marcellus is so attractive to gas developers that companies like CONSOL Energy (NYSE: CNX) are investing heavily in the region; CONSOL is going to spend nearly 75 percent of its 2013 capital on coal and gas operations located within the Marcellus Shale.

And last year, Standard & Poor reported that around half of all proven reserves of natural gas in the entire nation could be centered around the Marcellus. Given all this, it’s hardly a surprise that companies are flocking to acquire territory and begin development in the Marcellus region.

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