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UPDATE: Chesapeake Energy to exit Utica Shale in $2B sale


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UPDATE: Chesapeake Energy to exit Utica Shale in $2B sale

Chesapeake Energy Corp. agreed to sell its entire operating position in the dry gas Utica Shale in Ohio for up to $2 billion to the privately held Encino Acquisition Partners LLC as it plans to pursue more oil-laden plays.

The transaction includes more than 900,000 net acres in Ohio, and 920 operated and nonoperated wells, and related infrastructure and equipment. The wells produce more than 600 MMcfe/d, according to a July 26 Encino news release, and hold 85% of all the acreage included in the transaction. Encino, which was formed in 2017 by the Canada Pension Plan Investment Board and Encino Energy LLC, plans to have multiple drills operating on the properties to increase production.

Chesapeake said in its own release that it will receive $1.9 billion in initial closing proceeds, with a $100 million contingent payment based on future prices. The deal also would remove the company's future upstream and midstream commitments in the Utica, which Chesapeake estimated to amount to $2.4 billion.

Assuming flat commodity prices throughout the year, Chesapeake expects an improvement to its EBITDA of about 70 cents per barrels of oil equivalent in 2019 through lower cash operating costs and improved oil differentials.

Along with the exit from the gas-heavy Utica, Chesapeake is pursuing a more oily path, including a ramp-up in production from the Powder River Basin.

"While we are reducing our full-year natural gas and NGL volumes accordingly, we are raising our oil guidance by 500,000 barrels," President and CEO Doug Lawler said. "We are raising our capital expenditures slightly to reflect an accelerated capital program in the Utica on behalf of the buyer pre-closing, the cost of which will be settled in the post-closing adjustments, and increased drilling and completions activity in the Powder River Basin."

The company expects roughly 10% growth in its oil production in 2019, primarily driven by growth from the Powder River Basin. Chesapeake expects about 38,000 boe/d at the end of 2018 from that area, compared to the fourth-quarter 2017 production rate of 18,000 boe/d.

The transaction is expected to close in the fourth quarter. Chesapeake plans to use proceeds from its sale for debt reduction. The company also looks to renew and extend its revolving credit facility, expecting a new borrowing base that exceeds $7 billion.

Investors greeted the news warmly, with Chesapeake surging more than 9% at 5:50 p.m. ET in after-hours trading July 26.