(Updates with comment from analyst in fourth paragraph.)
Feb. 13 (Bloomberg) -- Chesapeake Energy Corp., the second- biggest U.S. natural-gas producer, plans to raise as much as $12 billion this year from asset sales and joint ventures as it seeks to generate enough cash to meet its drilling expenses.
The company expects to get $10 billion to $12 billion from transactions including the potential sale of all assets in the Permian Basin of Texas and New Mexico, Chesapeake said in a statement today. The Oklahoma City-based company plans to receive about $2 billion in the next 60 days from two separate transactions.
The sales will help the company reduce debt and fund its drilling operations as it faces gas prices that hit a 10-year low in New York last month. Chairman and Chief Executive Officer Aubrey McClendon has vowed to cut long-term debt 25 percent by year end as the company reduces output.
“This move is clearly in response to pressures exerted by weak natural gas prices, its high leverage and high spending plans,” Scott Hanold, a Minneapolis-based analyst for RBC Capital Markets, wrote today in a note to clients. “Our model indicates the Chesapeake has a $4 billion free cash flow deficit to fund during 2012.”
Gas dipped to a 10-year low of $2.231 per million British thermal units on Jan. 23. Gas for March delivery fell 3.2 percent to $2.40 per million British thermal units at 9:04 a.m. in New York, a 39 percent drop in a year.
Chesapeake rose 5.1 percent to $23.26 at 9:42 a.m. in New York.
The company said its 2012 financial plan aims to “fully fund” its planned spending for the year and provide additional liquidity for next year.
In the next two months, Chesapeake will receive an up-front payment for production to come in the Texas Granite Wash. Chesapeake didn’t say who the buyer would be.
The company also plans to sell stakes in a new subsidiary that will hold assets in the Cleveland and Tonkawa deposits in Oklahoma. The transaction would be “similar” to an agreement announced in November when private investors bought shares in a Chesapeake subsidiary that holds Utica Shale acreage.
Later in the year, Chesapeake said it may raise as much as $8 billion from transactions in The Mississippi Lime and Permian Basin.
The company is seeking joint-venture partners in the Mississippi Lime oil deposit and the Permian Basin. Chesapeake holds the rights to drill on 1.8 million net acres in the Mississippi Lime, which spans northern Oklahoma and southern Kansas.
For the Permian Basin, where Chesapeake holds 1.5 million net acres, the company said it may consider selling all of the assets “if it receives a compelling offer.”
Previous Permian Exit
In September 2002, McClendon said the company would exit the Permian, drilling instead in lower-cost fields in the Midwest. Fifteen months later, Chesapeake changed course with a $420 million acquisition including wells in the Permian from closely-held Concho Resources Inc.
Chesapeake plans to raise another $2 billion selling pipelines and gas-processing plants, oilfield-services operations and miscellaneous investments, according to the statement.
Separately, Chesapeake said it will sell $1 billion of senior notes due in 2019 and use the proceeds to repay bank credit.
Exxon Mobil Corp. is the largest gas producer.
--With assistance from Joe Carroll in Chicago. Editors: Jessica Resnick-Ault, Tina Davis
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