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Friday, July 27, 2018

Chesapeake Energy Sells All Utica Shale Assets in $2 Billion Deal

From Bloomberg:
Chesapeake Energy Corp.’s agreement to sell shale assets in Ohio for about $2 billion boosted the natural gas producer’s shares as it moves to whittle down debt.

The deal announced Thursday with closely held Encino Acquisition Partners is Chief Executive Officer Doug Lawler’s biggest in 3 1/2 years. After Chesapeake said almost all of the proceeds will be used to pay debt, its shares surged as much as 13 percent, the most in intraday trading since May 21.

America’s third-largest gas producer has seen rough times as prices for the heating and power-plant fuel plummeted. The company, once valued at almost $40 billion and now worth just one-tenth of that, has been punished by investors for a debt load amassed by late founder Aubrey McClendon.

The company has "under-performed because of legacy debt, legacy complexity and heavy gas-weighting," Lawler said in a telephone interview. Now, it has "transformed and is emerging as a very competitive growth story that no one expected would power through these difficult commodity price environments."

The Utica Shale assets in Ohio was the best asset to divest, Lawler said. The deal is expected to close in the fourth quarter. 
Encino is a 2017 creation of the Canada Pension Plan Investment Board and a Houston-based management team led by Hardy Murchison. The pension board plans to invest $1 billion into the partnership and own 98 percent of it, according to a separate statement. 
Chesapeake will no longer look to asset sales in the future to shrink its ratio of debt to profit, Lawler said. Instead, he’s aiming to achieve that target by raising production. 
Jettisoning the gas-rich Utica assets also will aid Lawler’s efforts to transform Chesapeake into a company focused predominantly on crude oil production. As of the end of 2017, more than 80 percent of the Oklahoma City-based explorer’s output was gas. Next year, he’s targeting 10 percent growth in the company’s oil production, according to the statement.
Click here to read the whole article.

Click here to view Chesapeake's press release on this deal.  Click here to read the release from Encino.

This is obviously some pretty huge news.  Now we will wait and see if the new owners of these assets choose to drill more wells or just sit on the acreage.

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