The assets in the oil and gas-rich Permian Basin are being sold in a series of deals to Royal Dutch Shell PLC, and Chevron Corp., and in a previously announced sale to affiliates of EnerVest Ltd.
Chesapeake is struggling under an enormous debt load accumulated in a rush to acquire land and other assets in recent years as new technology gave drillers access to enormous reserves of natural gas held in shale and other formations under several U.S. states.
Chesapeake and other drillers found and developed so much new natural gas that the price collapsed, decimating profits — and the ability to pay down debt.
The Oklahoma City company is trying to wipe $14 billion in debt off its books this year and the sale, announced Wednesday, brings it close to achieving that goal, the company said. Assets sales now total $11.6 billion for the year.
"These transactions are significant steps in the transformation of our company's asset base to a more balanced portfolio among oil, natural gas liquids and natural gas resources," said CEO Aubrey McClendon.
Analysts said Chesapeake received what appears to be a very good price for its infrastructure assets. But they said the $3.3 billion price for the Permian Basin land assets sold to Shell and Chevron was less than the $4 billion to $5 billion Chesapeake had expected to fetch. The company may have to sell more assets than it expected, or cut back drilling operations elsewhere.
"It's helped them climb up the wall in this hole they've dug for themselves, but they are not there yet," said Phil Weiss, an analyst at Argus Research.
Chesapeake shares rose 15 cents to $20.25 in morning trading on Wednesday, a gain of less than 1 per cent.
Natural gas prices hit a 10-year low this year as a warm winter and increasing production created a glut. Prices have risen steadily this summer because high temperatures increased demand for natural gas to generate electricity to run air conditioners. But the price is still 30 per cent lower than a year ago.
Drillers are shifting their focus to oil, because oil prices have remained high. It is much easier to transport oil than natural gas, so oil prices reflect global demand. Natural gas prices can fluctuate wildly on local supply and demand changes.
The land and infrastructure that Chesapeake is selling produced approximately 21,000 barrels of oil and other liquids and 90 million cubic feet of natural gas per day in the second quarter, or approximately 5.7 per cent of Chesapeake's production, the company said.
The land deals are expected to close within the next 30 days. Chesapeake anticipates receiving about 87 per cent of the proceeds in cash at closing. The rest of the proceeds are subject to certain title, environmental and other standard contingencies.
Chesapeake plans to sell most of its pipeline and storage assets to Global Infrastructure Partners for about $2.7 billion. That includes gathering and processing systems in the Eagle Ford, Utica, Haynesville and Powder River Basin Niobrara shale plays.
Chesapeake says it has also sold or entered into additional deals to sell pipelines and other assets that are expected to generate proceeds of about $300 million.
Other deals in the Utica Shale should bring in about $600 million. Once the transactions close, Chesapeake will still own about 1.3 million net acres of leasehold in the Utica Shale.
Chesapeake is keeping about 470,000 net acres of undeveloped leasehold assets in the Midland Basin to either sell at another time or develop.