By Oil & Gas Financial Journal staff
Another asset sale adds to near-term liquidity, but adds layer of uncertainty for investors
Chesapeake Energy Corp. (NYSE: CHK) has monetized certain of its producing assets in the Barnett Shale. The company has sold a five-year volumetric production payment (VPP) to an affiliate of Barclays Bank for proceeds of $1.15 billion.
The Oklahoma City-based company came in at No. 2 behind Devon Energy in the August OGFJ issue of Top Top Barnett shale producers.
The deal, which closed on September 30, 2010, includes roughly 390 billion cubic feet of proved reserves and approximately 280 million cubic feet per day of net production in 2011. Chesapeake has retained drilling rights on the properties below currently producing intervals and outside of existing producing wellbores.
An October 4 report by Jefferies & Co. Inc. noted the implied metrics of $2.95/mcfe of proved reserve and $4,100 per mcfe of daily production are in line with the current five-year strip price of roughly 5/mcf.
Chesapeake is responsible for all production costs associated with the VPP. According to Jefferies, financial advisor to Chesapeake on the transaction, the company’s wellhead production costs in the Barnett averaged $0.66/mcfe last year, while fully developed finding and development costs in the play appear to be around $1.50-1.75/mcfe.
Since December 2007, Chesapeake has completed eight VPP transactions and monetized approximately 1.0 trillion cubic feet of natural gas equivalent of proved reserves for combined proceeds of approximately $4.7 billion, or approximately $4.70 per thousand cubic feet of natural gas equivalent.
One of the company's most recent Barnett deals was a $2.25B joint venture with France's Total.
The Jefferies report noted that this transaction, coupled with an anticipated Eagle Ford venture, could “essentially eliminate the expected capex funding gap for this year,” but states that the company’s “perennial outspending and dependence on asset sales adds an additional layer of uncertainty for investors.”
Jefferies & Co. Inc. acted as financial advisor to Chesapeake on the VPP transaction.
According to Jefferies’ calculations, near-term liquidity is shored up by the deal as it estimated Chesapeake’s 2010 second half cash flow was roughly $1.7 billion short of anticipated total capex.
Late Monday morning, shares of Chesapeake were down -0.4800 (-2.105%) at $22.32.