Chesapeake Energy Corp. moved closer to its 2012 fundraising goal on Wednesday as it announced asset sales totaling about $6.9 billion.
The Oklahoma City-based oil and natural gas company has been looking to shed some assets to help overcome a budget shortfall estimated to be as high as $22 billion.
CEO Aubrey McClendon said the deals announced Wednesday put Chesapeake close to its goal of raising $13 billion to $14 billion this year.
“These transactions are significant steps in the transformation of our company’s asset base to a more balanced portfolio among oil, natural gas liquids and natural gas resources and production by focusing on developing and harvesting the value embedded in the 10 core plays in which Chesapeake has built a No. 1 or No. 2 position,” he said in a news release.
Chesapeake will use a portion of the proceeds from the asset sales to pay off a $4 billion loan it took out in May.
Chesapeake is selling the bulk of its acreage in west Texas’ oil-rich Permian Basin for about $3.3 billion. The company also will generate an additional $3 billion by selling most of its midstream holdings in a series of transactions.
The sale of assets in Ohio’s Utica Shale and other noncore areas will bring in another $600 million.
The Permian Basin assets have been viewed as the prize of Chesapeake’s portfolio of holdings for sale.
A subsidiary of Royal Dutch Shell has agreed to buy Chesapeake’s holdings in the lower Delaware Basin, while Chevron USA Inc. is buying acreage in the northern part of the basin.
Houston-based EnerVest is acquiring Chesapeake assets in the Midland Basin in a previously announced deal.
Those holdings produced about 21,000 barrels of liquids and 90 million cubic feet of natural gas per day during the 2012 second quarter. That accouned for only 5.7 percent of Chesapeake’s production during the quarter.
Chesapeake is retaining about 470,000 acres in Midland Basin for future sale or development.
McClendon reiterated that the Oklahoma City oil and natural gas company plans to sell $17 billion to $19 billion in assets — about one and a half times Chesapeake’s equity market capitalization — by the end of 2013 while continuing to increase its total production.
McClendon said Chesapeake is now the country’s No. 11 liquids producer and is still the No. 2 natural gas producer even though it has shifted its focus away from dry gas.
While 85 percent of Chesapeake’s 2012 drilling budget is dedicated to oil and natural gas liquids-rich areas, McClendon said he expects natural gas prices to soon rise. He said he disagrees with models that show natural gas production continuing to rise over the next few months.
Given that Chesapeake produces 10 percent of the natural gas in the U.S. and has been responsible for 35 percent of the gas production growth over the past few years, we find it hard to model natural gas production growth when we’re going to decline 7 percent,” McClendon said.
Chesapeake and other natural gas producers have stopped production as quickly as they ramped it up, McClendon said.
The buildup was unprecedented, and the runoff was equally unprecedented,” McClendon said.
If the country experiences a normal winter, natural gas prices will soon climb, he said.
At that point, many natural gas producers will rush back into the market, but Chesapeake will not, McClendon said.
The question isn’t: Can you make money drilling a gas well in the Barnett or Haynesville at $4?” he said. “The question is: What else can you do with that money? I think we can make more with oil.”
While the oil and natural gas liquids market likely will remain Chesapeake’s focus, McClendon said natural gas is still a valuable commodity.
I think the days of $2 to $3 gas are going to be over. I don’t think the days of $7 or $8 gas are quick to return. But there is a lot of money to be made in the middle,” McClendon said.
Canadian natural gas giant Encana Corp. has concluded company officials did not collude with rival Chesapeake Energy Corp. to lower the cost of land acquisitions in Michigan in 2010, Reuters reports.
The news agency reported in June that the companies plotted to keep land prices under control in the Collingwood Shale, a promising oil and natural gas play. That raised the specter of antitrust violations that have sparked investigations by the U.S. Department of Justice and authorities in Michigan.
A subsequent report cited emails indicating Chesapeake CEO Aubrey McClendon directed company officials to renegotiate or delay closing on deals with major Michigan lease holders after learning Encana was paring back its leasing efforts there.
A Chesapeake spokesman declined to comment Wednesday on the latest Reuters report.
The company has denied any wrongdoing in Michigan, where officials said it had considered a possible joint venture with Encana that was never consumated.
Encana’s board of directors, which led the investigation launched on June 25 with the assistance of outside attorneys, did not provide Reuters with a report on the scope of the inquiry, nor explain how it reached its conclusion.
“We can’t offer more detail than what we’ve released as the issue is still under investigation by the Antitrust Division of the Department of Justice and the Michigan Attorney General,” Encana spokesman Jay Averill said in an email to Reuters.
Chesapeake also is facing inquiries from the IRS and U.S. Securities and Exchange Commission, as well as an internal review by its board of McClendon’s personal finances.
McClendon is scheduled to speak Thursday morning at an industry conference in New York, his first such appearance since April.
Southeastern Asset Management, Chesapeake’s largest shareholder, has advised McClendon to focus on running the company rather than acting as an industry advocate.
When GOP delegates or others at this week’s Republican National Convention stop for a cup of coffee this week in Tampa, Fla., there’s a pretty good chance they’ll also end up with a lesson on compressed natural gas.
CNGnow.com, an advocacy organization supported by the natural gas industry, has a booth near the media area in the Tampa Convention Center. It is next door to the Tampa Bay Times Forum, where former Massachussetts Gov. Mitt Romney is expected to be nominated as the Republican candidate for president later this week.
Norman Herrera, director of market development at Chesapeake Energy Corp., said the convention is a good forum for CNG advocates, who are reaching out to delegates who aren’t familiar with the alternative fuel.
He said advocates are spotlighting Oklahoma Gov. Mary Fallin’s work with other governors to increase demand for natural gas vehicles, as well as the fueling stations being built by state companies like OnCue Express and Love’s Country Stores and Travel Stops.
Oklahoma is home to more than 70 existing or planned fueling stations, but Herrera said Florida — which is the nation’s second largest user of natural gas — has only five.
He said Florida derives 62 percent of its electricity from natural gas so it is a “vibrant market” for CNG.
Herrera said CNG advocates are talking about fleet conversions, vehicle choices and fueling stations with delegates seeking a caffeine fix at the conference. Water is available at the CNGnow booth also.
Delegates also are being ferried to and from the airport on CNG-fueled shuttles, courtesy of America’s Natural Gas Alliance.
The CNGnow booth, which opened Monday, will be in Tampa until Thursday.
CNGnow is a combined effort of Chesapeake, the Pickens Plan, American Clean Skies Foundation, NGVAmerica, America’s Natural Gas Alliance and American Gas Association.
There isn’t a for-sale sign at NW 63 and Western, despite Chesapeake Energy Corp.’s ongoing quest to raise cash, but the company’s largest shareholder has urged officials not to rule out the possibility of a sale.
The Wall Street Journal on Monday identified a potential buyer: oil major Chevron Corp.
Chevron has amassed $21 billion in cash, according to the report, spurring observers to wonder when the company may be mulling a potential acquisition.
Chesapeake’s market capitalization is about $12.39 billion, based on Tuesday afternoon’s stock price of $19.34 a share, although officials have maintained its oil and natural gas assets are more valuable than that.
Chevron, which is reportedly carrying more cash on its balance sheet than any other publicly traded energy company, maintains it is hoarding money to finance several multi-billion projects, but that hasn’t stopped analysts from speculating about a possible acquisition.
“That’s the only thing I can think of,” Oppenheimer analyst Fadel Gheit told WSJ.
Chesapeake declined to comment for the WSJ report.
Analysts have dismissed the possibility of a Chesapeake sale in the past because of the company’s complex financing structure, which includes venture partners and volumetric production payment plans.
Chesapeake Energy Corp. may be getting closer to finding a buyer for its holdings in west Texas’ Permian Basin.
The cash-strapped oil and natural gas company has agreed to sell part of its Permian acreage to Houston-based EnerVest Ltd., but two larger pieces remain available.
Forbes writer Christopher Helman believes Chinese giant Sinopec could be the company to buy those properties.
The proposed deal, detailed Tuesday by the Wall Street Journal, would involve capturing carbon dioxide emissions for coal-fired power plants then using them to bolster oil production in older fields.
Helman notes the Permian Basin, where Chesapeake holds about 1.5 million net acres, is home to more enhanced oil recovery operations than anywhere else in the world.
“A thought: wouldn’t it make just too much sense for Sinopec to be looking for ways to secure a long-term carbon dioxide supply before it announced a deal for Chesapeake’s Permian assets? Just speculation, but it fits.”
Chesapeake has said its Permian assets have drawn plenty of interest from prospective buyers, but officials have been coy about providing any details.
The company has been looking to raise cash to offset anticipated shortfalls in its operations budget.
Chesapeake has completed deals worth about $4.7 billion this year, including the sale of its stake in its former midstream subsidiary, which has been renamed Access Midstream Partners. The company hopes to raise an additional $7 billion this quarter, CEO Aubrey McClendon said in Chesapeake’s Aug. 7 earnings call.
About 1,600 Chesapeake Energy Corp. employees may be in line for substantial bonuses, Reuters reports.
Those employees are guaranteed payments of up to $140 million if Chesapeake changes hands.
Chesapeake spokesman Michael Kehs said the company’s recent board shake-up was not enough to trigger the payment provision.
Reuters found the provision in the contracts of about 12 percent of Chesapeake’s employees.
The 1,600 employees represent positions across the company and its subsidiaries, the documents show. They include title attorneys, land men, lab technicians and senior security officers – not simply top executives who typically receive so-called golden parachutes.
Perhaps most unusual, the Chesapeake employees would be entitled to these “change-of-control” payments even if they kept their jobs at Chesapeake after the company changed hands. For some employees, that means cash payments of 50 percent of their salary plus 50 percent of their most recent annual bonus, according to contracts examined by Reuters.
Kehs would not discuss the rationale for the change-of-control language in employee contracts, which dates back to 2003.
The provision may have been designed to lure employees to the Oklahoma City-based oil and natural gas company.
Most large companies have a “double-trigger” that pays bonuses to employees who lose their jobs after there is a change in control, instead of Chesapeake’s “single-trigger,” Reuters reported.
“The only rationale for a single trigger is to provide a windfall to management at shareowners’ expense, which is why they are increasingly rare,” said Michael Garland, head of corporate governance for New York City.
Garland and others suggested the clause could act as a “poison pill,” a provision that deters takeover attempts.
Southeastern Asset Management and activist Carl Icahn, Chesapeake’s largest shareholders, have urged company officials to be open to a potential sale.
Chesapeake Energy Corp. got some inside information from a rival producer in 2010 that prompted the company to alter its approach in at least 10 Michigan land deals, Reuters reported Wednesday.
CEO Aubrey McClendon directed Chesapeake officials to renegotiate or delay closing on deals with major Michigan lease holders after learning Encana Corp. was paring back its leasing efforts there, according to emails reviewed by the news agency.
The information could provide additional evidence to state and federal officials investigating whether Chesapeake and Encana broke the law by discussing how to suppress land prices in Michigan’s Collingwood Shale.
Reuters first reported last month on possible collusion between Chesapeake and Encana after the companies had been competing for leasehold in Michigan.
One antitrust expert told Reuters the exchanges between McClendon and Encana counterpart Jeff Wojahn, president of the Canadian company’s U.S. operations, were “highly suspect,” while another said they may have simply been an attempt to gather market intelligence.
McClendon has been under fire since Reuters reported in April that he had secured up to $1.1 billion in loans against his personal stake in Chesapeake’s wells.
The controversial perk that allowed him to invest in every well drilled by the company he co-founded is being discontinued, while McClendon has been replaced as Chesapeake chairman by former Conoco executive Archie Dunham.
Activist investor Carl Icahn said he is pleased with the new board at Chesapeake and that he is not interested in selling out just yet.
In an interview on CNBC Monday, he seemed to embrace a long-term view of the Oklahoma City energy company.
I think natural gas prices are going to go quite a bit higher and Chesapeake will be there to take advantage of it. I think — I hope you’re going to see a much higher price on Chesapeake. I would not sell it at all now,” Icahn said.
The billionaire investor repeated his view on the company and CEO Aubrey McClendon.
Chesapeake is in my mind a very undervalued asset,” Icahn said. “I think that Aubrey is a very bright guy. He’s put a lot of great assets together. The problem is they couldn’t afford to buy some of them. They gambled too much in buying them, and therefore you have this cash gap. You have to cut expenses drastically there. I think you can.”
Icahn began the interview by criticizing biotech company Forest Laboratories CEO Howard Soloman over the timing of his stock sales.
The discussion of Chesapeake begins at 7:38.
The U.S. Justice Department is investigating whether Chesapeake Energy Corp. and Encaca Corp. conspired to to drive down lease costs in Michigan, Reuters reported Monday.
The investigation follows Reuters report last week that executives for the two companies — including Chesapeake CEO Aubrey McClendon — repeatedly sent emails to each other in 2010, discussing how to avoid bidding against each other in public land auctions and in negotiations with private land owners in Michigan.
Spokesmen for the Justice Department and Chesapeake declined comment.
Besides the federal inquiry, the antitrust division of the Michigan Attorney Generals office and the Michigan Department of Natural Resources also opened investigations following last week’s article, Reuters said Monday, citing “three sources familiar with the matter.”
In the email exchange published by Reuters, McClendon told a Chesapeake vice president that it was time “to smoke a peace pipe” with Encana “if we are bidding each other up.”
The vice president replied, saying he had contacted Encana “to discuss how they want to handle the entities we are both working to avoid us bidding each other up in the interim.”
The Sherman Antitrust Act prohibits companies from discussion price-fixing and other noncompetitive actions. Companies can be fined up to $100 million and individuals up to $1 million for each offense. Victims of such discussions also can seek triple the amount of damages.