Chesapeake Continues Gas Selloff With $2.6B in Deals

NEW YORK ( TheStreet) - After bringing in the new year with a multi-billion dollar shale sale, Chesapeake Energy ( CHK) is adding to its string of 2012 divestitures with three oil and gas asset sales worth a total of $2.6 billion.

The nation's second largest natural gas producer is using sales to cut its debt and fund new oil exploration ventures that will shift its portfolio away from natural gas, which is near decade a low. In three sales announced on Monday, Chesapeake Energy also signaled that it will continue to aggressively target capital-raising sales in a multiyear divestiture plan that may bring $17.5 billion to the company by 2013.
Asset sales: A sign of the times for cash-strapped Chesapeake Energy.

After the market close on Monday, Oklahoma City-based Chesapeake Energy said that it had sold shares in a subsidiary with 1,000 oil and gas wells called CHK Cleveland Tonkawa to private equity firms The Blackstone Group ( BX), TPG Capital, hedge fund Magnetar Capital and EIG Global Energy Partners for $1.25 billion. The subsidiary has the rights to 245,000 acres in the Cleveland and Tonkawa basins, which contain tight sand oil and gas liquids assets.

Chesapeake Energy also sold a 10-year agreement for natural gas production in the Anadarko Basin to an energy affiliate of Morgan Stanley ( MS) for $745 million, or $4.68 per thousand cubic feet of natural gas. Those assets in what's called the "Granite Wash" in southern Midwest contain 160 billion cubic feet of natural gas equivalent of proved reserves and production of an estimated 125 million cubic feet of natural gas per day.

The deal marks Chesapeake Energy's tenth production payment sale since December 2007, raising roughly $6.4 billion, the company said in a statement.

Chesapeake Energy also said it signed a purchase and sale agreement in the Texoma Woodford basin in Oklahoma to XTO Energy, now a unit of ExxonMobil ( XOM), for $590 million in cash, in its third Monday deal.

While the sales add to Chesapeake Energy's deal making with large private equity investors like KKR ( KKR) and oil giants like Total ( TOT), few expect asset sales to slow. Currently, Chesapeake Energy plans to sell $17.5 billion in oil and gas assets through 2013 to help the company shift its natural gas-focused reserves toward higher priced oil assets. Meanwhile, the company is also looking to manage its debt of over $10 billion, which has kept its bond ratings below investment grade.

"We plan to monetize other non-strategic assets during 2012, including our assets in the East Texas Woodbine play where we own approximately 50,000 net acres of leasehold," said Chief Executive Aubrey McClendon in a statement announcing the deals. "We look forward to the completion of our Texoma Woodford transaction and other planned 2012 asset monetization transactions in the months ahead for proceeds of approximately $8-10 billion."

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Chesapeake Energy shares rose 1.54% in after hours trading to $21.80. The company's shares are off nearly 4% in 2012, putting 12 month losses near 40% on worries about the company's debt, profitability and low natural gas prices.

Even with asset sales in mind, McClendon expects that 2012 will be a turning point for natural gas after prices hit a decade low below $2 a MMBtu in March. At a March conference in New Orleans, McClendon said he expects gas prices to begin rebounding by the end of 2012 as traders begin to price in increasing exports of the commodity.

Earlier in March, McClendon signed a deal with KKR, where Chesapeake Energy will get $250 million from the private equity giant to invest in exploration real estate. As part of the deal, Chesapeake will source, own and manage shale assets that will provide future revenue royalty streams to it and KKR, which will provide $225 million of the $250 million in cash to buy up the royalty assets.

Separately, a Blackstone investment in natural gas export play Cheniere Energy ( LNG) is a positive for gas producers, as some investors bet that natural gas will increasingly get exported to international markets where the commodity is in less supply and fetches far higher prices.

For more on Chesapeake Energy, see the catch 22's keeping natural gas stocks in the ICU .

-- Written by Antoine Gara from New York.


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