This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Chesapeake Energy Can't Get the Chinese to Overpay for Every Acre

NEW YORK (TheStreet) -- Back in June, the Financial Times spurred M&A chatter about Chesapeake Energy (CHK) with a report that Chinese oil giant Sinopec was working on a deal for Chesapeake assets. With Chesapeake already openly trying to sell its Permian Basin acreage, the interest of a Chinese buyer (read "big premium payer") stoked market expectations that Chesapeake could raise as much as $6 billion from the Permian wheeling and dealing.

On Wednesday Chesapeake announced that it has sold the Permian assets, but not to Sinopec.

In fact, the assets were not even sold to a Chinese company like Sinopec or CNOOC (CEO) or any foreign state-controlled oil company (NOC). In addition, Chesapeake sold its Permian Basin interests -- roughly 6% of its production with a tilt to all-important liquids -- at a price that didn't just come below $6 billion, but below a previous Chesapeake estimate that the Permian could raise $4 billion to $6 billion.

With $3.3 billion in Permian assets deemed as "non-core," being sold off to oil giants like Royal Dutch Shell (RDS.A) and Chevron (CVX) as they push further into promising shale basins, the lack of a big premium from a foreign NOC reminds energy investors betting on Chesapeake's monetization strategy that when push comes to shove, a foreign buyer -- in particular a Chinese national oil company -- would raise so many political red flags it's hard to imagine an outright sale could be made.

All the M&A chatter about the foreign NOCs driving up values for shale acreage doesn't have much weight when the Chevrons and Shells of the world know that the U.S. government would never remain quiet on Chesapeake selling assets outright to a Chinese company. They also know that Chesapeake needs cash right now, not a fight.

When it first announced the planned sales, Chesapeake said it would raise $6 billion to $8 billion from Permian sales, a joint venture in the Mississippian Lime, and other miscellaneous transactions. Later, the company talked about a $4 billion to $6 billion value for the Permian alone.

Though, on its most recent earnings conference call, Chesapeake CEO Aubrey McClendon declined a request from Bank of America Merrill Lynch analyst Doug Leggate to update the outlook on deal value. "Aubrey, I don't suppose you would care to comment on the $4 billion to $6 billion original range that you gave relative to what you think you are going to realize?," Leggate asked, with McClendon replying that when the company had final numbers to report it would do so.

Wells Fargo analyst David Tameron was one of the analysts to write on Wednesday that the Permian deal came up short of expectations.

Phil Weiss, analyst at Argus Research, said the Permian brought in less than expected and yet the midstream sales raised more money than expected, so there's a tradeoff and Chesapeake continues to dig itself out of the hole it dug for itself. Nevertheless, "The price looks more reasonable for the buyers than seller," Weiss said, adding "This is U.S. property, so you cant get the same [NOC] premium."

There are plenty of caveats to the market's read on the deal as slightly disappointing.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,086.63 -26.91 -0.16%
S&P 500 1,987.01 +3.48 0.18%
NASDAQ 4,473.6970 +17.6810 0.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs