Chesapeake Energy to Raise $5 Billion Selling Fayetteville Shale Holdings

Chesapeake Energy Corp., the most- active U.S. natural-gas driller, intends to raise $5 billion this year by selling its Fayetteville shale holdings and its stake in two companies. It will use the money to cut debt.

The sale will include 487,000 net acres in the Arkansas shale field that produce the equivalent of 415 million cubic feet of gas daily, Oklahoma City-based Chesapeake said in a statement today. The company also will sell its stake in closely held service company Frac Tech Holdings LLC and in Chaparral Energy Inc.

Chesapeake said on Jan. 6 it planned to cut debt 25 percent in two years by selling assets while increasing production 25 percent. The Fayetteville stake will be the largest of the divestitures, worth as much as $4.6 billion based on other recent sales in the formation, Michael Bodino, a Dallas-based analyst for Global Hunter Securities said today in an interview. Exxon Mobil Corp. paid $650 million cash in December for Fayetteville operations of Petrohawk Energy Corp.

“You’re seeing consolidation in all these plays moving to larger companies,” said Bodino, who rates Chesapeake shares “neutral” and owns none. “These plays are big logistical challenges and the larger companies do a better job on the logistics.”

Multiplying Transactions

BP Plc paid $1.9 billion for a 25 percent stake in Chesapeake’s Fayetteville Shale operations in 2008, a month after buying all of the company’s operations in the Woodford Shale of Oklahoma’s Arkoma Basin for $1.75 billion. Chevron Corp. is buying Atlas Energy Inc. to add acreage in the gas-rich Marcellus Shale in the U.S. East. Exxon acquired XTO Energy Inc., a shale-gas producer, for $34.8 billion in stock and debt in June.

Cnooc Ltd., China’s largest offshore energy producer, in January agreed to pay $570 million in cash for a one-third stake in Chesapeake’s Niobrara shale project in Colorado and Wyoming.

“The three proposed asset sales announced today and the Niobrara joint venture are all likely to be completed in the first half of 2011,” Chief Executive Officer Aubrey McClendon said in today’s statement. The company intends to buy back as much as $3 billion of senior notes and cut bank borrowing.

The pretax proceeds from the new sales may exceed $5 billion, Chesapeake said. The company has about $14 billion of debt, according to data compiled by Bloomberg.

Company Holdings

In addition to the Arkansas holdings, Chesapeake owns 26 percent of Frac Tech, a hydraulic-fracturing contractor that in December filed for an initial public offering. Chesapeake also owns 20 percent of Chaparral Energy, an Oklahoma City producer that reported proved reserves equivalent to 149.3 million barrels of oil from U.S. onshore fields as of Dec. 31. About 63 percent of those reserves are oil, which is more valuable than gas at current prices.

A sale might be a catalyst for Chaparral to go public, Bodino said, “because they’re kind of oily and the market likes that right now.”

Chesapeake rose $1.22 cents, or 4.1 percent, to $31.28 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 21 percent this year.

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net;

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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