Chesapeake Energy Corp., the second-biggest U.S. natural gas producer, said it will spend $1.71 billion in separate transactions to buy back preferred shares and add oil production and reserves.
Chesapeake will repurchase $1.26 billion of preferred shares of its CHK Utica unit to cut annual investor payouts by $75 million, enough to drill more than a dozen shale wells, the Oklahoma City-based company said today in a statement. Separately, it will pay $450 million to closely held RKI Exploration & Production LLC as part of a land swap in southeastern Wyoming.
Chief Executive Officer Doug Lawler has been adding more lucrative oil producing wells and untangling complex financing agreements since replacing Chesapeake co-founder Aubrey McClendon 13 months ago. The swap with RKI adds the equivalent of 4,500 barrels of oil a day to production and 66,000 net acres in an area that may contain the equivalent of 2 billion barrels.
“The transaction better consolidates both companies’ interests,” Scott Hanold, an Austin, Texas-based analyst for RBC Capital Markets, wrote today in a note to clients. The terms are “consistent with pricing over the past few years in the area,” he wrote. RBC has a hold rating on Chesapeake and Hanold owns no shares.
Repurchasing preferred shares will end Chesapeake’s most expensive borrowing, the company said.
The realized oil price for the second quarter is expected to be $85.23 a barrel, up 0.2 percent from the first quarter, Chesapeake said. Its realized gas price fell 25 percent to $2.45 per thousand cubic feet. The company is scheduled to report second-quarter results on Aug. 6.
“We are very pleased with the performance of our Utica assets, and as we continue to execute on our strategy of eliminating financial complexity,” Chesapeake’s Chief Financial Officer Domenic Dell’Osso,’’ said in the statement. “This is an opportune time to repurchase the remainder of the CHK Utica preferred shares at a price that is accretive to net present value.”
Chesapeake fell 0.5 percent to $26.70 at 10 a.m. today in New York. It has risen 4 percent this year.
Exxon Mobil Corp. is the largest U.S. natural gas producer by volume. RKI is backed by private-equity giant First Reserve Corp.