Chesapeake (CHK) energy recently announced the sale of 413,000 acres to Southwestern Energy Company (SWN). This sale represents one of the largest acquisitions in the Marcellus and Utica formations for 2014. Chesapeake has been working on fixing their balance sheet and getting their debt under control. The sale to Southwestern Energy company of their Marcellus and Utica acreage positions will certainly help them achieve that. Ever since Robert Lawler took over at the CEO positions, he has been taking aggressive action to turn Chesapeake around.
Marcellus and Utica Assets Sold
According to Markewatch, the sale included some 435 producing wells within the 413,000 acres. The price tag for this sale came in around $5.38 billion. Since Chesapeake had around $12 Billion in debt in June, this sale will help them pay down their debt. Of the properties acquired, there were 256 operated wells and 179 non-operated wells.
This sale could not have come at a better time for Chesapeake as the price of oil have been rapidly falling. Our recent article regarding falling oil prices and the impact on mineral owners in the Marcellus shale is equally true for a large E&P like Chesapeake. As oil prices fall, the value of mineral rights and existing production also falls as well. Just like a mineral owner, Chesapeake would been receiving less for royalties and their existing property, and selling royalties would have meant taking a lower amount. Fortunately for Chesapeake, they completed their sale of Marcellus and Utica acreage and production before the prices fell so far. Had Chesapeake waited to sell and not had a contract in place, this could have meant taking significantly less for this sale.
Impact on Mineral Owners
As a mineral owner, the impact of Chesapeake’s sale of 413,000 acres to Southwestern will not have an immediate impact. However, it does show that Chesapeake is willing to give up existing assets in the Marcellus, and may be less interested in drilling/development in that area. This will also put pressure on Southwestern to reduce the number of acres they pick up from mineral owners. Since they now have a large amount of acreage to develop through acquisition, they will likely slow down leasing and purchasing in the Marcellus.
As a mineral owner, it’s always important to stay up to date on large things that affect the Marcellus and could impact pricing. With declining oil prices and a large sale, demand for mineral rights may decrease which will push prices lower.
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