Chesapeake is Shedding These Assets

Oklahoma City-based Chesapeake Energy (NYSE:CHK) announced today its decision to sell $6.9 billion worth of oil and natural-gas fields in the Permian Basin of Texas and New Mexico in order to repay part of the company’s $14.33 billion debt load and fund this year’s drilling and production operations.

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Driven by a slump in gas prices, the United States’ second largest producer of natural gas has lost 60 percent of its value in the past year, limiting the company’s cash flow and forcing former CEO Aubrey McClendon to accelerate the pace of asset sales.  Currently Chesapeake Energy faces a $10 billion dollar funding gap, and its debt load of $14.33 billion far outweighs the company’s market value of $13.37 billion.  The deal is an attempt by the company to shift its operations from cheap natural gas to more lucrative crude oil.

Of the company’s 1.5 million acres in the Permian Basin, Chevron (NYSE:CVX) agreed to purchase 264,000 acres for an undisclosed amount and Royal Dutch Shell Plc (NYSE:RDSA) will buy 618,000 acres for $1.94 billion.  In total, Chesapeake made $3.3 billion from the sale of its most valuable assets, a sale the company had hoped would bring in $4 billion. Global Infrastructure Partners will buy most of Chesapeake’s remaining pipeline and processing operations for $2.7 billion, and several undisclosed buyers have purchased smaller assets for a total of $900 million.

“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,” said McClendon in a statement.

News of the sale drove shares in the company up almost 1 percent, to $20.40.

The asset sales are “a positive step” wrote Argus Research analyst Phil Weiss in a recent research note. “If this company doesn’t do the asset sales and raise enough cash, they’re not going to survive.”

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