Oklahoma City’s Chesapeake Energy Corporation announced it is selling its Utica Shale operating area in Ohio in a $2 billion deal with Houston’s Encino Acquisition Partners.
The sale should be finalized in the fourth quarter of the year and includes a $100 million contingent payment based on future natural gas prices. Chesapeake indicated it will use the net proceeds to reduce its debt.
The sale includes 320,000 net acres along with 920 operated and non-operated wells producing 107,000 boe per day of which 67% is natural gas.
At least $1.9 billion will be applied to the debt. The company said the sale should result in a $450 million reduction of projected 2019 gathering, processing and transportation expense. It also will eliminate all future Utica Shale midstream and downstream commitments of nearly $2.4 billion.
“Today’s announcement makes Chesapeake a stronger and more competitive company,” said Doug Lawler, Chesapeake’s President and Chief Executive Officer. “By divesting our position in the Utica and using the proceeds for debt reduction, we will not only significantly improve the health of our balance sheet, but we will also accelerate progress toward our strategic goals of reducing our debt, improving our margins and reaching sustainable free cash flow neutrality.”
He said as a result of the sale, the company expects to see a 10% increase in overall oil production in 2019 with more growth anticipated in 2020.
The growth in oil production is to come from Chesapeake’s exploration in the Powder River Basin in Wyoming.
“With the addition of a fifth rig earlier this month, we believe our position in the PRB will lead our organic oil volume growth, driving further leverage reduction, enhancing our margins and improving our free cash flow,” added Lawler.
As a result of reducing the full-year natural gas volumes, the company is raising its oil guidance by 500,000 barrels. It is also raising its capital expenditures slightly to reflect an accelerated capital program in the Utica. Lawler also indicated the company plans to seek a renewal and extension of its revolving credit facility in the 2018 third quarter. He said it will be based on an estimated $7 billion in pro forma collateral available, excluding the Utica assets.
As part of the transaction, Chesapeake has agreed to sell all of its acreage in Ohio, of which approximately 320,000 net acres are in the commercial window for Utica Shale development, 920 operated and non-operated wells which produced an average of approximately 107,000 boe per day (67% natural gas, 24% natural gas liquids and 9% oil) in 2017, on a net basis, and related property and equipment. Proved oil and natural gas reserves in the Utica Shale as of December 31, 2017 were approximately 480 million boe (72% natural gas, 23% natural gas liquids and 5% oil).
Powder River Basin Update
The Powder River Basin in Wyoming continues to develop into the oil growth engine of the company, as recently demonstrated by a 78 percent increase in net production compared to the average 2017 fourth quarter rate. On July 22, 2018, total net production hit a new record of approximately 32,000 net boe per day (42% oil, 41% natural gas and 17% natural gas liquids), compared to an average 2017 fourth quarter rate of 18,000 boe per day. Chesapeake now projects net production from the area will reach approximately 38,000 boe per day by year-end 2018, and expects total net annual production from the PRB to more than double in 2019 compared to 2018.
As a result of this planned transaction, Chesapeake has updated its guidance on certain factors that affect its financial performance for the remainder of 2018 below. Additional details about this transaction and the company’s strategy going forward will be provided on the company’s 2018 second quarter earnings conference call that has been scheduled on Wednesday, August 1, 2018 at 9:00 am EDT. The telephone number to access the conference call is 323-994-2093 or toll-free 888-254-3590. The passcode for the call is 9446629. The number to access the conference call replay is 719-457-0820 or toll-free 888-203-1112 and the passcode for the replay is 9446629. The conference call will be webcast and can be found at www.chk.com in the “Investors” section of the company’s website. The webcast of the conference will be available on the website for one year.
CHESAPEAKE ENERGY CORPORATION
MANAGEMENT’S OUTLOOK AS OF JULY 25, 2018
Chesapeake periodically provides guidance on certain factors that affect the company’s future financial performance. New information or changes from the company’s May 1, 2018 outlook are i