Chesapeake Energy Corporation announced this morning $6.9 Billion of Asset Sales, which brings Year-to-date asset sale proceeds to $11.6 Billion. Shares of the company are currently down 0.35% on the news to $20.03. Daniel Loeb’s Third Point has bought Chesapeake’s debt, while other value investors, Carl Icahn and Mason Hawkins, are among the largest shareholders. Shares have risen from a low reached earlier this year of close to $13. The company is facing trouble over actions related to their CEO Aubrey McClendon, including his use of personal use of company assets, and even running a hedge fund.
A further look into the sale:
Chesapeake Energy Corporation (NYSE:CHK) is selling virtually all of the remaining assets held by subsidiary Chesapeake Midstream Development for $2.7 billion. This includes gathering and processing assets in the Eagle Ford, Utica, Haynesville and Powder River Basin. The company is also selling other midstream assets for $300 million.
Chesapeake Energy Corporation (NYSE:CHK) sold producing assets in three packages for $3.3 billion, but is retaining 470K net acres of undeveloped leasehold.
Chesapeake Energy Corporation (NYSE:CHK) was marketing 337K net acres along the northern fringe of the Utica Shale and has sold that, along with
other undisclosed acreage, for $600 million.
Permian Basin Deal Specifics. Many details remain unknown at this point, but here is what we know. Chevron Corp. (CVX) acquired 246K net acres of leasehold in SE New Mexico with 7 mboe/d of production. Royal Dutch Shell (RDS.A) (RDS.B) acquired 618K net acres of leasehold in the Delaware Basin in Texas for $1.935 billion. The properties are currently producing 26 mboe/d. No breakout of the liquids/gas components of either property’s production stream was provided.
Wells Fargo notes this in a research report issued today, stating; without full detail on the various transactions and considering HBP requirements and CHK’s need to sell the assets quickly, ‘it is difficult to provide much of a readthrough on other Permian operators in our coverage such as Apache Corporation (NYSE:APA), Devon Energy Corporation (NYSE:DVN), Concho Resources Inc. (NYSE:CXO), Laredo Petroleum Holdings Inc (NYSE:LPI), and Approach Resources Inc. (NASDAQ:AREX).’
Sternee Agee estimates that $3.4 billion of discretionary cash flow this year, versus the company’s ~$10.25 billion capital
program. The $6.9 billion cash flow shortfall can be bridged by the $11.6 billion in asset sale proceeds YTD, and the remaining $4.7 billion can be used to retire the $4 billion loan the company took out in the second quarter. They still expect
to hear news of an additional $1.5-$2.5 billion of asset sales later this year, the largest piece being a joint venture in the Mississippi Lime, which may allow the company to deliver on previously targeted debt reduction to $9.5 billion by year end.
Concord Genuity has a slighty different outlook on the company’s cash flow, stating:
In ’13, Chesapeake should outspend cash flow by $4+ billion and has established a goal of $4-$5 billion in projected asset
sales to cover the shortfall. Indentified divesture assets include its 30% stake in FTS International (~$1billion), an IPO of up to 50% of the oilfield service company (~$0.5 billion), another JV in the Utica Shale, and certain non-core and/or non-cash
generating assets. That said, CHK is still expected to remain $2+ billion per annum free cash flow negative beyond next year.
The transactions announced today improve Chesapeake’s near-term liquidity and are in line with the company’s previous
statements and our economic analysis/expectations.
(Disclosure: No positions in any companies mentioned)