Chesapeake Energy Corp. (CHK:US), the second- largest U.S. natural-gas producer, announced $2.6 billion in asset sales that will cut debt and fund drilling after slumping gas prices eroded cash flow.
The company sold shares in a new subsidiary to an investment group led by a Blackstone Group LP-led affiliate that includes TPG Capital and EIG Global Energy Partners LLC, Oklahoma City-based Chesapeake said in a statement today. The agreement gives the buyers a share of royalties from oil wells in the Cleveland and Tonkawa plays in Oklahoma and a 6 percent annual distribution.
Chesapeake also agreed to sell Morgan Stanley (MS:US) 10 years of future gas output from the Anadarko Basin Granite Wash for about $745 million. The price equates to about $4.68 per thousand cubic feet of gas, the company said, or more than twice the current market price for the fuel.
In a third transaction, Chesapeake will sell Exxon Mobil Corp. 58,400 net acres of leases in Oklahoma’s Texoma Woodford play for about $590 million in cash before certain costs and adjustments. The deal is expected to close on April 30, Chesapeake said.
“Aggressive land grabs in the past are now leading to profitable harvesting, through sales, investor participation agreements and production,” Philip C. Adams, a debt analyst at Gimme Credit LLC in Chicago, said in a note to clients today.
Chesapeake rose 1.5 percent to $21.80 at 4:18 p.m. in New York. Before today, the shares lost 35 percent in the past year as a glut of North American gas collapsed prices and drained profits from gas explorers.
Exxon has been expanding its search for untapped prospects in the Woodford formation this year after completing 31 wells in the area in 2011. The Irving, Texas-based company had nine rigs drilling in the Woodford as of last month, according to a company presentation in New York on March 8.
Chesapeake Chief Executive Officer Aubrey McClendon plans to sell $17.5 billion in assets by the end of 2013 to plug a cash-flow gap aggravated by excess supply that drove prices for the fuel to a 10-year low. Chesapeake also is shifting its focus from gas to crude oil, which commands higher prices.
McClendon visited potential investors from South Korea, India, Japan, China and Singapore in February to tout the company’s access to gas that is 85 percent cheaper than competing supplies from the Middle East. In a March 6 interview in Oklahoma City, McClendon said potential investors weren’t concerned about Chesapeake’s $10.3 billion in net debt, more than twice Exxon Mobil (XOM:US)’s burden.
McClendon told a New Orleans energy conference on March 26 that he expects gas prices to begin rebounding by the end of this year.
Exxon is the largest U.S. gas producer, according to the Natural Gas Supply Association, a Washington-based industry group whose members produce about one-third of the nation’s gas.
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