Shares of Chesapeake Energy Corporation (CHK) gained nearly 17% post the announcement of its multibillion dollar asset sale deal with Southwestern Energy Co. (SWN). The Oklahoma City-based independent oil and gas company has entered into an agreement to sell assets located in the Southern Marcellus Shale and Eastern Utica Shale for a massive $5.375 billion. The deal is likely to close in the final quarter of the year.
Shareholders appreciated Chesapeake’s move as it would strengthen financials, bringing in the much needed cash. Several analysts are of the view that the proceeds from the deal could be used to reduce the company’s huge $11.5 billion debt. According to the market view, Chesapeake has received good value for the assets.
As a result, stocks of other firms like Magnum Hunter Resources, Gulfport Energy (GPOR) and Consol Energy that have property in these regions also gained as the higher value of this deal increases the valuation of their acreage.
On the other hand, Southwestern Energy shares lost over 10% and slumped to a 52-week low at $31.34. This was owing to investors’ unfavorable response on indications of the company having overpaid for the assets.
The agreement includes drilling rights in acreage spread across approximately 413,000 net acres in Northern West Virginia and Southern Pennsylvania. The assets include 1,500 wells, of which 435 are located in the promising Marcellus and Utica Shale plays.
The said properties have net proved reserves of about 221 million barrels of oil equivalent (mmboe) as of Dec 31, 2013. Last month, average net production from this acreage was about 56,000 barrels of oil equivalent per day (boe/d), which include 184,000 Mcf of gas, 20,000 barrels of natural gas liquids and 5,000 barrels of condensate.
Management at Chesapeake – the largest U.S. natural gas producer after ExxonMobil Corporation (XOM) – mentioned that the deal is a major transformative step taken by the company. However, the reduced asset base should not have any negative impact on its growth projections. Chesapeake restated its 2015 production growth guidance in the range of 7%–10%.
Currently, Chesapeake Energy holds a Zacks Rank #5 (Strong Sell), while Houston, TX-based Southwestern Energy carries a Zacks Rank #3 (Hold).
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