HOUSTON (Reuters) – The Chesapeake Energy Corp. ( CHK.N ) plans to sell its entire Ohio natural gas area to privately owned Encino Acquisition Partners for approximately $ 2 billion, the company said Thursday.
Chesapeake Energy Corporation's 50-hectare campus will be seen on April 1
Oklahoma City-based oil and gas producer said it will use the proceeds to repay debts. the end of March was about 9.83 billion dollars. The transaction is expected to close in the fourth quarter.
Chesapeake has released assets and employees as a government crisis in 2013 led to the disappearance of co-founder and former Chief Executive Officer Aubrey McClendon, who died in a car accident in 2016.
The sale of the entire Chesapeake stake in The Utica Slate will strengthen the company's balance sheet and shift the focus away from gas production to oil, Chesapeake CEO Doug Lawler said in an interview.
"We will absolutely drive a larger percentage of oil production in our portfolio," Lawler said. "We hope to achieve this through organic growth, exploration and future acquisitions."
The sale to Houston's Encino Acquisition Partners covers 320,000 acres in Ohio's Utica Shale and 920 wells, which currently produce approximately 107,000 barrels of oil equivalent per day. Encino is supported by the Canadian Pension Plan Investment Board and Encino Energy.
The purchase price includes a conditional payment of $ 100 million based on future natural gas prices.
The transaction is part of Chesapeake's plan to repay debts that rose to as much as US $ 16 billion in 2012 following a series of land purchases just before the collapse of US natural gas prices.
The company, which expects to reduce debt by $ 2 to $ 3 billion this year, plans additional small-scale sales and expects to use higher-yielding cash flow in existing fields to reduce debt, Lawler said.
Chesapeake expects to be able to replace the cash flow from its Utica acreage within one year by investing in other assets, notably the Powder River Basin in Wyoming. These assets that the company acquired about ten years ago were once on the Chesapeake chopping block.
By drilling longer horizontal wells and using better completion technology, the Powder River Basin has proven to be a lucrative investment, Lawler said. Chesapeake is also considering increasing production by acquiring new land elsewhere.
"We will look for opportunities," Lawler said.
Chesapeake also said that its oil production in 2019 will increase by about 10 percent from 2018, adjusted for asset sales, with additional oil growth in 2020.
Coverage from Collin Eaton in Houston and Anirban Paul in Bengaluru ; Edited by Shounak Dasgupta and Tom Brown