Chesapeake Energy will transfer its Barnett shale assets in north Texas to a company backed by private equity firm First Reserve in a bid to cut costs and boost income.
The transfer, to Saddle Barnett Resources, will eliminate future Barnett shale midstream and downstream commitments of about $1.9bn and reduce the independent's gathering, processing and transportation expenses by $250mn this year and $465mn next year. Overall, as a result of the deal, Chesapeake's operating income is expected to increase by about $200mn-$300mn a year from 2016 through 2019, it said.
Exiting the Barnett shale is Chesapeake's latest attempt to shore up its balance sheet as the plunge in oil prices has challenged chief executive Doug Lawler's plan to sell off billions of dollars in US assets, including in the prolific Marcellus and Utica shale basins.
"Today's announcements mark a major step in our continued progress to transform Chesapeake," Lawler said. "We believe there are more positive moves to come."
As part of the transaction, Chesapeake and Williams Partners have agreed to terminate the current gathering agreement, including a projected minimum volume commitment (MVC) shortfall, for which Chesapeake will pay $334mn in cash to Williams. Saddle Barnett Resources will also pay a sum, it said, without giving details. The transaction is expected to close in the third quarter.
The Barnett transaction will include about 215,000 acres and about 2,800 operated wells, which produced an average of 65,000 b/d of oil equivalent (boe/d) in the second quarter.
Chesapeake, at its second quarter earnings on 4 August, said it is raising its asset sales target to $2bn, including a portion of its Haynesville shale properties in Louisiana, compared with $1.2bn-$1.7bn set earlier. It reported $964mn in successful deals through the second quarter.
Since 1 January, the company has retired at maturity, repurchased or exchanged for equity about $1bn of debt, $518mn of which was due in 2017. Its total debt was about $8.7bn as of 30 June compared with $9.7bn as of the end of the year.
It posted a loss of $1.75bn in the second quarter compared with a loss of $4bn a year earlier.
Source: Argus Media
Date: Aug 11, 2016