Chesapeake To Sell Some Shale Assets To Southwestern Energy For $5.38 Bln

(RTTNews) - Natural gas producer Chesapeake Energy Corp. (CHK) said it has executed a purchase and sale agreement to sell assets in the Southern Marcellus Shale and a portion of the Eastern Utica Shale in West Virginia to Southwestern Energy Co. (SWN) for aggregate proceeds of $5.375 billion. The transaction is expected to close in the fourth quarter.

Chesapeake has agreed to sell about 413,000 net acres and around 1,500 wells in Northern West Virginia and Southern Pennsylvania, 435 of which are in the Marcellus and Utica formations, along with related property, plant and equipment.

Average net daily production from these properties was approximately 56,000 barrels of oil equivalent or boe during September, consisting of 184,000 Mcf of gas, 20,000 barrels of natural gas liquids and 5,000 barrels of condensate.

As of December 31, 2013, net proved reserves associated with these properties were about 221 million barrels of oil equivalent or mmboe.

Doug Lawler, Chesapeake's Chief Executive Officer, said, "We expect our full-year production guidance for 2015 to remain in the range of 7-10% growth from 2014 levels adjusted for asset sales...We look forward to deploying the proceeds from this significant transaction in ways that will continue to drive even greater shareholder value."

Meanwhile, Southwestern Energy said separately that the assets being purchased target natural gas, natural gas liquids and crude oil contained in the Upper Devonian, Marcellus and Utica shales. The average working interest of the operated properties is 67.5 percent.

The majority of the acreage is held by production or has lease commitments through 2018 that average less than 20,000 acres annually. Average net revenue on the leases is approximately 86 percent.

Steve Mueller, CEO of Southwestern Energy, said, "Southwestern already has leading positions in two world class projects in our Fayetteville shale and northeastern Pennsylvania Marcellus assets and both will continue delivering highly economic production and reserve growth for many years. With this acquisition, we will have secured a complementary third premier acreage position."

As part of the transaction, Southwestern will assume a portion of Chesapeake's firm transportation and processing capacity commitments. Southwestern's preliminary plans are to start with four to six rigs in 2015 and increase to 11 rigs by 2017.

The company estimates it can drill for a minimum of 20 years maintaining that 11-rig pace. By the end of 2017, the reserve mix for the company is estimated to be approximately one third each for the Fayetteville, northeast Marcellus and the newly acquired West Virginia and Pennsylvania properties as compared to the roughly two thirds for the Fayetteville and one third northeast Marcellus at present.

Southwestern has also received financial advisory services and a commitment from Bank of America, N.A. for a $5 billion 364-day senior unsecured bridge term loan credit facility. This, together with the company's existing revolving credit facility, will be available to fund the transaction.

The company plans to access the debt and equity capital markets to raise the permanent financing for the transactions. It is also considering dispositions of certain non-strategic assets.

CHK closed up 1.6 percent on Wednesday at $17.77 and is up 3 percent in pre-market activity.

SWN settled up 7.8 percent at $35.69.