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Chesapeake: Private Equity's Shale Real Estate Agent (Update 1)

(Chesapeake Energy, KKR story updated for Carrizo Oil & Gas deal, analyst commentary)

NEW YORK (TheStreet) -- If there is one man synonymous with the shale land grab it has been Chesapeake Energy (CHK) CEO Aubrey McClendon, but Chesapeake has run into a problem recently (no, not the Rolling Stone article): It's running out of money to acquire shale acreage.

McClendon may have happened upon a solution: He's becoming private equity's shale real estate agent as private-equity players like Blackstone Group and KKR (KKR) become much more active in shale investment.

Blackstone recently invested in natural gas export play Cheniere Energy (LNG), while KKR recently acquired oil and gas company Samson Investment.

Chesapeake and KKR announced on Tuesday a $250 million joint venture through which Chesapeake will source, own and manage shale assets that will provide future revenue royalty streams. KKR will provide $225 million of the $250 million in cash to buy up the royalty assets.

Details in a press release were scant, but with KKR putting in the lion's share of the money to buy up the shale acreage royalty rights, it would stand to reason that KKR will receive a lion's share of the revenue from the assets.

That's why a cynic could argue that Chesapeake Energy, known by detractors as a shale asset "flipper," has now become private equity's shale real estate agent. As it is strapped for cash, Chesapeake now has to reduce its role to getting a finder's fee and management fee for going out and finding good shale investments for the deep-pocketed private-equity players.

In a way, it makes perfect sense. If there is one thing that has driven investors and Wall Street crazy about Chesapeake Energy, it has been McClendon's penchant for saying one thing -- becoming more financially disciplined -- while doing another like buying up assets and spreading the Chesapeake balance sheet even thinner. Yet if there is one thing that Chesapeake knows better than just about any other company it is how to source and operate shale assets.

Chesapeake has had to get a lot more serious in a hurry about showing its financial discipline to investors, especially with the recent slide in the price of natural gas crimping cash flow for the company and magnifying its funding gap.

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