Chesapeake Buys More Utica Acreage After $1.14 Billion Deal

Chesapeake Energy Corp. (CHK), the most active U.S. petroleum and natural-gas driller, is continuing to acquire acreage in Ohio’s Utica Shale, a day after agreeing to sell part of its holdings in the field for $1.14 billion.

Chesapeake is buying about 1,000 acres a day in the Utica, and plans to announce similar joint ventures in other oil fields around the country next year, Chief Executive Officer and Chairman Aubrey McClendon said on a conference call with analysts today.

“We’ve got something the world wants, which is the highest-return assets in the worldwide oil and gas business,” McClendon said.

Chesapeake in September reported production of as much as 1,425 barrels a day from one of its first four wells in the Utica formation, a “phenomenal” rate, Michael Bodino, Dallas- based head of energy research for Global Hunter Securities LLC, said at the time. The formation may hold as much as 5.5 billion barrels of oil and 15.7 trillion cubit feet of gas in Ohio, according to the state’s Department of Natural Resources.

Chesapeake will get $640 million from an undisclosed buyer as part of the sale of a 25 percent stake in 650,000 acres, according to a statement issued yesterday. Its partner in the Utica fields, private-investment group EnerVest Ltd., will get $90 million, EnerVest Chief Executive John Walker said yesterday in a telephone interview.

Utica Acreage Sale

The buyer, an international energy company, will contribute as much as $1.5 billion toward Oklahoma City-based Chesapeake’s drilling costs and $210 million toward EnerVest’s costs, the companies said.

The deal values the companies’ Utica acreage, which is in an area containing both gas and petroleum liquids, at about $15,000 an acre, according to the statement.

Chesapeake also sold $500 million worth of preferred shares in a new subsidiary, CHK Utica LLC, to private-investment firm EIG Global Energy Partners LLC of Washington.

The funds will pay for drilling 700,000 acres of the Utica, according to the statement. The acreage in both deals largely overlaps, Jim Gipson, a Chesapeake spokesman, said in an e-mail.

An additional $750 million in CHK Utica’s preferred shares will be sold to investors, Chesapeake said.

Reducing Debt

Chesapeake announced earlier this year that it would reduce its debt 25 percent over two years and increase its production 25 percent.

Chesapeake will need to spend $7 billion to cover its capital costs in 2012, plus another $2.3 billion to meet its debt-reduction goal, Bob Brackett, an analyst with Sanford C. Bernstein & Co. in New York, said in an interview today.

“They would need two or three of these joint ventures,” said Bracket, who rates Chesapeake’s shares an “underperform” and owns none.

McClendon said the Utica deal would cover all of Chesapeake’s investment in the field, while selling the equivalent of 10 percent of its acreage.

Chesapeake’s stock fell 6.8 percent to close at $27.07 in New York.

Before yesterday, Chesapeake had sold more than $11.5 billion in assets over the past two years to help fund production and buy new acreage, according to data compiled by Bloomberg.

Chesapeake’s partners in previous drilling acreage deals include BHP Billiton Ltd. (BHP) of Australia, China-based CNOOC Ltd. (883) and France’s Total SA. (FP)

To contact the reporter on this story: Mike Lee in Dallas at mlee326@bloomberg.net

To contact the editor responsible for this story: Tina Davis tinadavis@bloomberg.net