Chesapeake Energy

Now that the summer is officially over, it is interesting to take a look at the natural gas market, and the most interesting company in that sector, Chesapeake Energy Corporation (NYSE:CHK). Chesapeake is the second largest natural gas company. Additionally, Chesapeake has attracted the attention of some famous value investors, such as; Mason Hawkins, Carl Icahn and Dan Loeb.

Since the beginning of this year, the average price of the typical NGL barrel has declined by more than 30% to below $40/Bbl from nearly $60/Bbl at the end of last year, while WTI spot crude oil and natural gas prices have declined by just ~5% and~8%, respectively, and Brent prices are up ~9%. However, natural gas has rebounded recently after reaching record low prices. The increase in natural gas prices will be good for companies like Chesapeake Energy Corporation (NYSE:CHK). However, Chesapeake Energy Corporation (NYSE:CHK) still has a lot of work to do, and needs to monetize assets through sales.

 

To fund its large spending gap over 2012-2013, Chesapeake plans to monetize $11.5-14 billion in assets by year-end 2012. Chesapeake has generated ~$6.6 billion in proceeds thus far; company is looking to JV its Mississippi Lime and sells its Permian assets for $6-8 billion; oilfield service, and other assets also in the mix.

Delineation of Utica shale oil window Utica Shale in Ohio Ongoing Chesapeake believes it has de-risked the majority of its dry and wet gas acreage within the play; efforts are currently underway to test its oily-window acreage.

More information on the company from Chesapeake Energy – Put its 80k gross (40k net) acres in the Chitwood Knox area of the Cana Woodford play in Oklahoma up for sale citing insufficient resources to adequately develop the assets. The properties include 289 producing wells (48% operated by CHK), 10 non-operated wells currently drilling and 24 non-operated wells waiting on completion. Average production from the region is ~7.8 MBOE/d gross with a liquids content of ~20% (~2.0 MBOE/d net), which equates to an average of ~27 BOE/d from each well. Total output comprises ~1% of CHK’s total production and has already been incorporated in its 2012 and 2013 guidance. The deal is projected to close by year end. Nearly 100% of the acreage is held by production (HBP) and management estimates that another 1,379 gross (476 net) horizontal Woodford wells can be drilled in the region. The company estimates EURs of 8.7 Bcfe (15% liquids) with estimated well costs of $9mm in the play.

(Disclosure:No position)

 

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