Natural gas giant
Chesapeake Energy Corporation
) has inked a deal to sell certain assets in western Oklahoma, as
it tries to narrow cash-flow shortfall while shifting gears to
oil-directed drilling from natural gas.
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Oklahoma City-based Chesapeake said it plans to divest more than
28,000 net acres in the West Turkey Creek Granite Wash and
Hogshooter Wash areas. The to-be sold assets comprise 117 wells
that generate $3.2 million a month in net operating cash flow.
The acreage comprising 113 producing wells delivered 765 barrels of
oil, 684 barrels of natural gas liquids and 9,935 thousand cubic
feet of natural gas a day over the past year.
The company insisted that these properties are not considered as
core to the company and the sale does not include the Hogshooter
oil find, which the company regarded as an important one.
Earlier this year, Chesapeake made a major new discovery in the
Hogshooter play in the Anadarko Basin of the Texas Panhandle and
western Oklahoma. The company holds net acreage of about 30,000 in
the Hogshooter play, of which over 90% is held by production from
its legacy Granite Wash formation.
Chesapeake remains focused on its asset monetization initiatives as
the company is trying hard to minimize capital expenditure and
devolve as much as $14.0 billion worth of assets this year and an
additional $4 billion to $5 billion in 2013. The company has been
in the news in recent times as it is under pressure to fund its
capital budget amid diminishing cash flows given the cascading
natural gas prices.
The company entered into a series of transactions in September this
year to sell a major portion of its properties and infrastructure
in west Texas for a total consideration of $6.9 billion. Chesapeake
inked deals worth $3.3 billion, with the affiliates of
Royal Dutch Shell Plc
), and Houston-based EnerVest, Ltd. to divest the southern Delaware
Basin section, northern Delaware Basin portion and Midland Basin
portion of the Permian Basin, respectively.
Given the gas price scenario, Chesapeake intends to deploy more
funds toward liquids. In particular, the company plans to invest
heavily in the development of its holdings in the Eagle Ford Shale,
Granite Wash and Mississippi Lime.
However, we prefer to remain on the sidelines and see the stock
performing in line with the broader market. Chesapeake holds a
Zacks #3 Rank, which is equivalent to a Hold rating for a period of
one to three months. We maintain our long-term Neutral
recommendation for the company.