Chesapeake Shares Fall on Oklahoma Asset Sale Agreement

Zacks

Chesapeake Energy Corporation CHK has inked an agreement with Denver-based FourPoint Energy to divest assets owned by two of its subsidiaries – Chesapeake Exploration LLC and CHK Cleveland Tonkawa LLC. The total value of the deal has been fixed at $840 million. The company’s share price, however, has been trending downward post-announcement and has shown a fall of more than 5%.

The $840 million deal covers three related transactions, which involves incremental and contingent payments to the companies' preferred interest owners, GSO Capital Partners LP, as well as other third party investors and common interest owner – CEX.

The assets to be acquired comprise an interest in about 1,500 producing wells mainly in the Cleveland, Tonkawa and Marmaton formations in western Oklahoma. The average daily net production from these wells was about 21,500 barrels of oil per day over the twelve months ended Apr 2015. 7,000 barrels per day (Bbld) of oil and 5,000 Bbld of natural gas liquids as well as 57 million cubic feet per day (Mmcfd) of natural gas made up the production mix. The assets span across approximately 250,000 net acres and are centered in Roger Mills and Ellis counties, OK. Nearly 95% of the leasehold is held by production. The transaction is expected to close by Aug 31, 2015. FourPoint will take over full operations of the assets on the closure of the transaction.

Upon completion of the acquisition, FourPoint will gain interests in over 400,000 net acres in the Western Anadarko Basin, an area in western Oklahoma and the Texas Panhandle. Per estimations, the company will then have net production of 260 Mmcfed of natural gas from nearly 4,600 wells. About 50% of the production will include crude oil and natural gas liquids.

Since 2012, Chesapeake has drilled and completed over 190 horizontal wells in the area to be acquired.

Chesapeake currently holds a Zacks Rank #3 (Hold). Better-ranked stocks from the same space are Transmontaigne Partners L.P. TLP, EQT Midstream Partners L.P. EQM and LRR Energy, L.P. LRE. All these stocks sport a Zacks Rank #1 (Strong Buy).

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