Chesapeake closes funds gap with $2.6bn deals
Chesapeake Energy, the US’s second-largest natural-gas producer, has sealed a series of deals that will raise $2.6 billion as the company looks to bridge a funding gap that has been exacerbated by decade-low natural gas prices
Chesapeake raised $1.25 billion in a deal in which it sold preferred shares in a newly created subsidiary, CHK Cleveland Tonkawa, to a group of private equity investors led by Blackstone Group. Chesapeake transferred ownership of around 245,000 net acres of liquids-rich tight sands assets in the Cleveland and Tonkawa unconventional plays in Oklahoma to the subsidiary.
The second deal saw Chesapeake sign a 10-year “volumetric production payment” (VPP) deal with an affiliate of Morgan Stanley worth $745 million. Chesapeake secured a price of about $4.8 per thousand cubic feet of natural gas equivalent (cfe) from assets in the company’s Anadarko Basin Granite Wash unconventional project. The deal covers proved reserves of around 160 billion cfe and current production of 125 million cubic feet of natural gas equivalent per day (cfe/d).
It was the tenth such VPP deal since December 2007, Chesapeake said. Through those deals the company has sold about 1.37 trillion cfe of proved reserves for an average of around $4.65 million cfe, raising a total of $6.4 billion.
In the final deal, Chesapeake sold 58,400 net acres in the Texoma Woodford play in Oklahoma to ExxonMobil’s US unconventional gas-focused subsidiary XTO Energy for $590 million. The acreage is currently producing about 25,000 cfe/d, according to Chesapeake.
Chesapeake’s chief executive, Aubrey McClendon, said that the company’s shareholders could expect further deals to come this year. “We plan to monetise other non-strategic assets during 2012, including our assets in the East Texas Woodbine play where we own approximately 50,000 net acres of leasehold. We look forward to the completion of our Texoma Woodford transaction and other planned 2012 asset monetization transactions in the months ahead for proceeds of approximately $8-10 billion,” McClendon said.
Chesapeake, like other natural gas-focused operators, has been hit hard by plummeting natural gas prices. Rising production from shale plays across the US combined with lower-than-expected winter demand has seen US natural gas prices plummet in recent months. Front-month futures prices fell below $2 per million British thermal units for the first time since early 2002 on April 11.
As a result, Chesapeake and others have been forced to scramble to raise cash. Earlier this year Chesapeake signed a $2.32 billion deal with French major Total for the sale of a 25% stake in its prospective Utica Shale position.