Chesapeake to sell $6.9 billion of assets to close cash gap

Cracking Shale

Major international energy explorers including Chevron and Exxon Mobil Corp., the largest gas producer, have been amassing drilling rights in onshore U.S. prospects they previously ignored as marginal. During the past decade, domestic explorers such as Devon Energy Corp. and Chesapeake perfected intensive drilling techniques to crack shale formations, triggering a land rush from Texas to Ohio. Demand for oil fields also has been spurred as crude more than tripled to $90 a barrel during that period.

“It’s a positive sign that there are proven counterparties that want to do business with Chesapeake,” Rezvan said. McClendon and Archie Dunham, who replaced him as chairman in June, have “delivered” on a promise to accelerate asset sales and narrow the cash gap, Rezvan said.

Cash Crunch

Chesapeake, the second-largest U.S. gas producer, lost as much as 60 percent of its market value in the past year as a glut-driven slump in gas prices squeezed the company’s cash flow and forced McClendon to accelerate the pace of asset sales. Investors also battered the stock amid two federal probes of potential conflicts between the CEO’s personal financial transactions and corporate duties.

McClendon, 53, was deposed from the chairman’s post in June and more than half the board was replaced as Chesapeake’s largest shareholders, Southeastern Asset Management Inc. and Carl Icahn, agitated for governance reforms. McClendon also is losing access to a corporate perk that allowed him to buy personal stakes in almost every well the company drilled.

Energy companies spent $16.4 billion on acquisitions in the Permian Basin between January 2009 and July 10 of this year, according to data compiled by investment research firm ITG. The transactions involved 2.01 million acres and the equivalent of 110,908 barrels of daily oil production.

Quitting Permian

McClendon has been shifting drilling rigs from money-losing gas fields to prospects that hold crude and gas liquids such as propane, which command higher prices. On June 1, the company announced the largest oil discovery in Chesapeake’s 23-year history in a formation near the Texas-Oklahoma border known as Hogshooter.

Chesapeake has no plans to put its 30,000 acres of Hogshooter leaseholds up for sale, Jim Gipson, a spokesman for the company, said during a June 1 interview.

McClendon considered quitting the Permian Basin once before, when he announced plans in September 2002 to pursue lower-cost prospects in the U.S. Midwest instead. Fifteen months later, he changed course with a $420 million acquisition including wells in the Permian from closely-held Concho Resources Inc.

Jefferies & Co. Inc. and Goldman Sachs Group Inc. advised Chesapeake on the sale of Permian and midstream assets.

The company will have no comment on the deals today beyond the statement, Michael Kehs, a Chesapeake spokesman, said in an e-mail.

Bloomberg News

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