Chesapeake Selling Ohio Assets for $2 Billion Dollars

Chesapeake Energy Corp. has agreed to sell its Utica Shale assets in Ohio for $2 billion, executives said Thursday.

The Oklahoma City-based oil and natural gas company will use proceeds from the sale to repay debt while also increasing drilling activity in Wyoming's Powder River Basin, CEO Doug Lawler said.

"The divestiture of the Utica Shale is another significant step in Chesapeake's transformation," Lawler said Thursday in an interview with The Oklahoman.

"As we take the $1.9 billion in anticipated net proceeds to reduce our debt, it's going to further strengthen our portfolio going forward and increase our cash flow."

The sale to Houston-based Encino Acquisition Partners is expected to close in the fourth quarter. The sale price includes a $100 million contingent payment based on future natural gas prices.

Paying off the $1.9 billion in debt is expected to cut Chesapeake's annual interest expense by $150 million.

Chesapeake has relied heavily on assets sales to repay more than $12 billion in debt over the past five years. Lawler said the company now is to the point where it will reduce debt through cash flow rather than primarily through asset sales.

"This large asset sale is a strategic pivot for the company going forward in that we will be turning toward our existing assets for EBITDA (earnings before interest, taxes, depreciation and amortization) growth," Lawler said. "That's not to say we would not sell additional assets going forward, but asset sales will no longer be our principal target to achieve debt reduction. We're going to do that organically through growth."

Chesapeake finished 2017 with about $9.2 billion in debt.

The sales announcement came after markets closed Thursday. In aftermarket trading, Chesapeake shares rose sharply.

Chesapeake operates 920 wells in the Utica, producing about 107,000 barrels of oil equivalent per day. More than two-thirds of the production is natural gas, along with 24 percent natural gas liquids and 9 percent oil, the company said.

While the Utica sale will reduce the company's revenue, Lawler said much of that cut soon will be replaced by increased profitability in the Powder River Basin. Chesapeake now plans to add a fifth drilling rig in the basin.

"It's a very strong oil growth asset for us," Lawler said. "We are experiencing improved drilling and completion costs and reduced drilling and completion time."

Chesapeake produced about 32,000 barrels of oil equivalent per day in the Powder River Basin as of July 22, up from about 18,000 equivalent barrels per day in the fourth quarter of 2017. Lawler said he expects the area's production to increase to about 38,000 equivalent barrels per day by year's end.

"We anticipate we will see further growth that essentially will double that again in 2019," Lawler said.

Overall, Chesapeake now is set to produce 10 percent more oil in 2019 than in 2018, adjusted for asset sales, the company said Thursday.

Source:NewsOK