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    Chesapeake, RKI swap Powder River Basin assets

    Continuing its quest to refine its portfolio, Chesapeake Energy Corp. (NYSE: CHK) has outlined an asset exchange in the Powder River Basin and a repurchase of Utica preferred shares.

    The Oklahoma City-based company has to exchange Powder River Basin assets in Wyoming with RKI Exploration & Production LLC (RKI).  Chesapeake will convey to RKI approximately 137,000 net acres and its interest in 67 gross wells, with an average working interest of 22% in the northern portion of the PRB, where RKI is currently designated operator. In exchange, RKI will convey to Chesapeake approximately 203,000 net acres and its interest in 186 gross wells, with an average working interest of 48% in the southern portion of the PRB, where CHK is currently designated operator. In addition to the exchange of acreage, Chesapeake will pay RKI $450 million in cash.

    Upon closing of the acreage exchange, Chesapeake’s PRB acreage will be concentrated in the southern area. It will operate nearly 100% of its 388,000 net acres in the PRB, and will hold an approximate 79% average working interest. Chesapeake currently holds approximately 322,000 net acres in the PRB with a 38% average working interest.

    “Given that 4.5 mboe/d of net production is being acquired, the average acreage acquisition cost is below the net acreage cost of $6,818/acre,” noted Stifel analysts following the announcement.

    Chesapeake estimates potentially recoverable gross resources of more than 2 billion boe on its Powder River Basin acreage and plans to run 7-9 rigs in the region in 2015, up from three rigs prior to the transaction.

    In the Niobrara formation, Chesapeake has achieved a greater than 50% reduction in drilling cost per foot over the past two years. Coupled with planned longer laterals and completion improvements, single-well rate of return potential is targeted to exceed 40%, assuming a constant WT) crude oil price of $90 per barrel and a Henry Hub natural gas price of $4 per thousand cubic feet (mcf), said the company in a prepared statement.

    Doug Lawler, Chesapeake’s CEO, commented, “Excellent results to date from the Niobrara and Sussex formations, coupled with additional stacked pay potential in other Upper Cretaceous sands as well as the Frontier and Mowry formations, demonstrate the potential of the Powder River Basin to be a major oil growth engine for the company.”

    Additionally, Chesapeake has agreed, in principle, to repurchase Utica subsidiary preferred shares for $1.26 billion.

    The repurchase of all outstanding preferred shares of its unrestricted subsidiary, CHK Utica LLC from third-party preferred shareholders, would retire Chesapeake’s approximately $75 million in annual cash dividend payment s to third-party preferred shareholders.

    Chesapeake plans to fund the cash portion of the RKI acreage exchange and the repurchase of the CHK Utica preferred shares with available liquidity, including nearly $1.5 billion of unrestricted cash held on its balance sheet as of June 30, 2014.

     

     

     

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