Chesapeake Energy strikes $1.15bn Barnett Shale deal.
Chesapeake has a aggressive programme to lease acreage in US fields that produce oil or more profitable natural gas that has a high liquids content.
To raise funds, the company has announced plans for joint ventures in fields including the Eagle Ford in South Texas and plans for volumetric production payment (VPP) deals such as the one struck with Barclays. VPPs are seen as less risky than buying oil and gas properties outright and tend to attract more interest when commodity prices are high. Chesapeake said proceeds from the deal would be used to reduce borrowing from a revolving credit facility, but rating agencies typically treat VPPs as debt.
The five-year deal includes about 390 billion cubic of proved reserves and about 280 million cubic feet of production per day in 2011, Chesapeake said.
The deal, worth $2.95 per thousand cubic feet equivalent (Mcfe) on a proved reserved basis and $4,107 Mcf per day on a production basis, was seen as a "net neutral" to Chesapeake's net asset value, according to research from CapitalOne Southcoast in New Orleans.
"Short-term pricing for the deal is favourable, but the fact that Chesapeake is willing to lock in sub-$3.00 prices to fund an oversized capital programme reaffirms our view of the stock," Ticonderoga Securities analyst Daniel Pratt said in a note to clients. He rates the company "neutral." Chesapeake's pursuit of oil assets, similar to the course it followed snapping up millions of shale gas acres to drill, may lead to underperformance of the company's shares, Pratt wrote.
The Oklahoma City, Oklahoma, company is selling 8 per cent of 2011 production and 3 per cent of year-end proved reserves as part of this deal, CapitalOne said.
US benchmark natural gas prices have slumped in recent months and were trading near $3.76 per million British thermal unit on the Nymex.
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