Chesapeake Targets $10-$12B from Asset Monetizations this Year

HOUSTON - Chesapeake Energy Corp. said Monday it may completely sell its assets in the Permian Basin, one of the most prolific oil-and-gas fields in the U.S., as part of its plan to fully fund capital expenditures this year.

Chesapeake, the second-largest U.S. natural-gas producer after Exxon Mobil Corp., announced the possible sale of what is considered prime oil- and gas-production fields in the Permian, located in Texas and New Mexico, after receiving investor pressure to bring under control the $10.3 billion in long-term liabilities it reported last month. Chesapeake plans to bring its total debt to $9.5 billion by the end of this year.

Chesapeake is targeting $10 billion to $12 billion of asset sales this year to fully fund its 2012 capital expenditures and to provide additional liquidity for 2013. The company last summer said it expected capital expenditures this year to be between $6 billion and $6.5 billion.

The oil and natural-gas producer revealed the debt-reduction effort in January 2011 after activist investor Carl Icahn disclosed a stake in the company and said he had held discussions with management on increasing shareholder value. Icahn sold his stake last year.

Chesapeake said today it would consider a 100% sale of its 1.5 million net acres of leases in the Permian if the company "receives a compelling offer."

The Oklahoma City-based natural-gas producer had until lately been focusing on seeking a partner to operate the Permian Basin land as a joint venture. An outright sale of Chesapeake's Permian acreage could generate $10 billion in itself, said Niel Dingmann, analyst at Sun Trust.

Chesapeake, like other independent natural-gas producers, has seen its cash flow pinched by a glut in the gas market, which has resulted in the lowest prices for the commodity in over a decade. Chesapeake said in January that it was cutting back on natural-gas-directed drilling in an effort to spearhead a reduction in the output that is contributing to the oversupply.

By considering putting the entire Permian play up for sale, Chesapeake may be acknowledging an overriding need for cash, Simmons & Co. analyst Bill Herbert wrote in a research note. "Selling oily Permian outright also shows stress as we believe it is likely an attractive asset," Herbert said.

Chesapeake's Permian Basin acreage represents 5% of the company's net reserves and production. Chesapeake last reported 17.1 trillion cubic feet equivalent net proved reserves and total production of 3.6 billion cubic feet equivalent per day of oil and gas. Chesapeake said its acreage is one of the six largest in the Permian.

Chesapeake is also seeking a joint-venture deal for its 1.8 million acres in the Mississippi Lime, which is a field in Kansas and northern Oklahoma that produces mostly oil from limestone formations. The company estimates that entering joint ventures in the Permian and Mississippi Lime plays could fetch up to $8 billion.

Chesapeake also said Monday it would make a $1 billion public offering of senior notes due March 2019.

Chesapeake reported last month it slashed its long-term debt by just over $2 billion over the past year and expected to meet its 25% two-year debt-reduction goal by the end of this year, regardless of natural-gas prices.

Copyright (c) 2012 Dow Jones & Company, Inc.


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Barbara Torres | Feb. 17, 2012
I realize my comment is not like any of yours. I am a businesswoman and I also, have land that is ready for gas/oil drilling. I dont feel good about what is happening in the gas/oil world. There are too many complex factors happening at once. It is a real pity that some politicians and companies are struggling for good or great deals at the expense of poor and unsuspecting persons who really need all the money they can get just to survive. I see all this as people who dont really understand what life is all about. It is basically, about how you treat yourself and others.

Northern Plains | Feb. 14, 2012
What this is an example of is a company swimming in debt. Yes its a shame they may need to sell valuable properties but they need to do something to fix their balance sheet. CHK spent the past three years putting together huge blocks of acreage in various prospective plays. This worked well only as long as they could mark it up and flip some. They made a tidy profit selling Joint Ventures on some. Yet they are now in a bind since they have not been able to sell some of the others to JV investors. I don't see this as "tax incentives" problem, rather it appears they need to spend less time dealing and more time drilling.

Thomas Williams | Feb. 14, 2012
Chesapeake is a good example of what is wrong with major corporations. Selling very valuable assets located in America to countries like China, while keeping their profit margin at a record level. Tax incentives for such traitorous companies, yes they still receive tax incentives while the rest of the country struggles with overwhelming debt. Politics and big business, they sleep together, even when they are not related.

Juan Paul Dawg Perez | Feb. 13, 2012
Question: Does this mean that work, from a roughneck point of view, will slow for all aspects of the production of oil & gas? From locating, rat hole, drilling, fracn, to production. When and where will we see and feel this pinch? We all know that the belt is tightened from the top. Is this why Nomac halted anymore hiring for now?

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