How Will Chesapeake Fund New Development?
With low natural-gas prices leading to a funding shortfall, Chesapeake Energy (NYSE:CHK) announced on Monday it closed out three deals that will raise a much-needed $2.6 billion. The second-largest U.S. natural-gas producer will use the money raised to fund development and cut debt.
The company agreed to sell 58,400 acres of Oklahoma assets to a subsidiary of its larger rival Exxon Mobil (NYSE:XOM) for about $590 million in cash. The Exxon deal is expected to close April 30. Chesapeake also closed sale of production payments to Morgan Stanley (NYSE:MS) for assets in its Anadarko Basin Granite Wash play for about $745 million.
Chesapeake finished selling preferred shares today in a new subsidiary called CHK Cleveland Tonkawa to a group led by a Blackstone Group (NYSE:BX) affiliate, which delivered about $1.25 billion. The agreement gives the buyers a share of royalties from wells in the Cleveland and Tonkawa plays in Oklahoma.
Chesapeake also announced it had closed 10 volumetric production payment deals since December 2007, for a total savings of about $6.4 billion.
Chief executive officer Aubrey McClendon wants to sell a total of $17.5 billion in assets by the end of 2013 to plug a cash flow shortfall as natural gas prices fell to a ten-year low. The company has been under pressure from shareholders to reduce spending and cut debt. It is also trying to shift focus to the higher-paying crude oil.
The company’s stock has fallen 37 percent over the past year.