Chesapeake Energy Corporation (NYSE: CHK) shares rose Friday, following company’s announcement that it will sell Utica Shale position.
Chesapeake, based in Oklahoma City, announced that it has entered into an agreement to sell its interests in the Utica Shale operating area located in Ohio for approximately $2 billion to Encino Acquisition Partners, a private oil and gas company headquartered in Houston.
The transaction, which is subject to certain customary closing conditions, including the receipt of third-party consents, is expected to close in the fourth quarter of 2018.
The purchase price includes a $100-million contingent payment based on future natural gas prices and is subject to adjustment for certain customary items at or following closing. Chesapeake intends to use the anticipated net proceeds to reduce debt.
Transaction highlights included a $1.9-billion initial closing proceeds to be applied toward reduction of debt; up to $150 million reduction in annual cash interest expense, and a $450-million reduction of projected 2019 gathering, processing and transportation expense, for an expected improvement of approximately $0.50 per barrel of oil equivalent (boe).
The deal eliminates all future Utica Shale midstream and downstream commitments of approximately $2.4 billion.
"This essentially ends the era of asset sales as being the principal instrument for improving our financial balance sheet," Chesapeake Chief Executive Doug Lawler said.
Under the deal, expected to close in the fourth quarter, Chesapeake would shed its last 320,000 acres in the Utica, a region the company’s late co-founder, wildcatter Aubrey McClendon, once called the “biggest thing to hit Ohio since the plow.” Chesapeake’s 920 wells there produced the equivalent of about 107,000 barrels of oil a day last year.
Shares in Chesapeake acquired five cents, or 1.3%, to $4.46 early Friday afternoon.
