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Wednesday, September 16, 2015

Rumors Surface That Chesapeake Energy is Shopping Utica Dry Gas Assets for $2 Billion

From Seeking Alpha:
Five days ago my phone, messaging apps, and inbox blew up with rumors circulating that Chesapeake Energy (NYSE:CHK) was looking to sell its dry gas assets in the Utica Shale - some of the sending parties were very crediblenames that I trust, including E&P managers of other firms. The same managers and sources that helped me confirm for Seeking Alpha readers thedetails of Chesapeake's Four Points transaction ahead of Chesapeake issuing a PR were the sources calling in this information. You can imagine I took the rumor serious and immediately began looking further into it. 
To check the validity of these claims I didn't turn to the broader internet, I didn't turn to Twitter, and I certainly didn't turn to the national news stations on TV. I simply pulled up the CHK ticker in my Sentieo terminal. I had seen all I needed to see. Chesapeake, on a day when the market was taking E&P names much lower (and if I remember correctly all energy names), was skyrocketing higher by the second. I immediately realized the rumor had 1) been spreading in real-time and 2) likely had something of credibility at its source to drive that amount of volume into the ticker all things considered. 
Since then multiple sources that I follow are reporting that it was Bloomberg News which had information regarding the Chesapeake development. One of these secondary sources, Kevin Kaiser (Energy Sector Head at Hedgeye) was first to report that former Linn Energy, LLC (NASDAQ:LINE) CFO Kolja Rockov would be leaving the company. Kaiser alleged this exit was the result of a personal bankruptcy that was imminent - one that was so drastic Kolja was canceling the completion of his $8 million home. Only days later Linn Energy was filing an 8-K to announce Kolja's exit. I only detail this prior reporting to put into context the sourcing of the Chesapeake news. I believe the sourcing is reliable. It's also contributory that Chesapeake has been clear at recentpresentations and within its most recent investor deck that "restructuring gathering agreements" and "managing commitments and reducing obligations" are key, immediate-term strategic initiatives for lowering its all-important LOE+G&A/boe costs. This proposed transaction would do plenty of the latter in a big way as the former has just been executed.
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Chesapeake is, of course, the most prominent and active Utica shale driller by far.  It reported 491 wells with production data in the second quarter of 2015, with the next-highest number from any driller being Gulfport Energy's 137.  So this certainly qualifies as big news in the Utica shale.

It certainly would be a stretch to call it any sort of a surprise, however.  The thinking for some time has been that Chesapeake will have to continue to look at selling major assets, and that the company's Utica shale acreage would be a likely candidate to be shopped.

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