Energy Sector Deals Keep Coming, as Chesapeake Strikes 3
Struggling amid a surplus of natural gas and depressed demand, energy companies continue to look to deal-making to bolster their financial positions.
In the latest, the Chesapeake Energy Corporation has announced three deals that will raise $2.6 billion in cash for the natural gas giant, moves that will help it cope with low prices.
It has been a tough environment for Chesapeake and other energy companies, which have been dealing with the effects of a warm winter and a sputtering economy. Natural gas prices are about half what they were a year ago, putting pressure on producers.
Such issues have prompted several companies this year to strike deals and raise cash. In January, the Devon Energy Corporation sold a stake in its shale operations to Sinopec International Petroleum Exploration and Production for $2.2 billion. The Blackstone Group earlier this year agreed to provide $2 billion in financing to Cheniere Energy.
Chesapeake, the nation’s second-largest natural gas producer after Exxon Mobil, has been particularly aggressive. It has made a flurry of deals in the last year, seeking to raise cash to reduce debt and bolster what are expected to be sagging earnings.
While its management has insisted that natural gas prices will begin rising late this year, the company is also seeking to diversify its holdings, including by finding lucrative properties that contain crude oil and natural gas as well as natural gas liquids.
Yet Chesapeake has continued to hunt for new shale assets as well, hoping to maintain its status as one of the nation’s top producers of natural gas.
Under the largest deal announced on Monday, Chesapeake reaped $1.25 billion from selling preferred shares of a new subsidiary, CHK Cleveland Tonkawa, which owns “unconventional liquids-rich” assets in Oklahoma.
The investors who acquired the stake were led by GSO Capital Partners, an arm of the Blackstone Group, the private equity giant that has delved deep into the natural gas industry in recent months. The investors, who also included TPG Capital, Magnetar Capital and EIG Global Energy Partners, will earn a 6 percent quarterly dividend and a 3.75 percent royalty from the first 1,000 new wells drilled on the land in Oklahoma.
In the second deal, Chesapeake sold a 10-year volumetric production payment, or V.P.P., which requires the company to deliver natural gas at a future date in exchange for cash upfront. The company struck the deal, worth $745 million, with an an affiliate of Morgan Stanley. Chesapeake retained drilling rights on the properties involved in the deal, including the Anadarko Basin in Oklahoma....MORERecently:
Natural Gas: Chesapeake Goes Naked (CHK; RRC)
Cash Strapped Chesapeake Reduced to Acting as Real Estate Broker for Shale Property Buyers (CHK; KKR)
Natural Gas: Chesapeake’s CEO Courts Asian Investors for $100 Billion Resource (CHK)
