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.
Devon Energy Corp. CEO John Richels spoke Tuesday with CNBC’s Mad Money host Jim Cramer about how the company’s stock price is trading down on lower-than-expected earnings in the second quarter.
Richels blamed much of the drop on lower prices for natural gas, natural gas liquids and Canadian oil. The temporary price drop should not significantly affect the company’s long-term growth, he said.
This business is cyclical. Prices are cyclical. We’re sticking with our focus on investing in high-return projects. We’re maintaining our capital discipline, and we’re continuing to build this big asset base on the oil side, which we’re really excited about,” Richels said.
Like most oil and natural gas companies, Devon is working hard to refocus its attention on oil instead of natural gas.
We grew our oil production 26 percent year-over-year. That’s not off of a small base. By the end of this year, we’ll be over 40 percent oil and liquids production. We’re spending every cent in our company today on oil and natural gas liquids growth, and about three-quarters of it on oil,” Richels said.
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.
Host Jim Cramer pointed out that while the company’s earnings missed expectations last week, production was up sharply, topping 100,000 barrels per day.
It’s beyond our imagination for sure,” Hamm said. “Those numbers have come pretty quickly. We should see more expansion coming from here.”
One of the biggest factors holding back growth in the Bakken formation of North Dakota is the limited pipeline infrastructure in the area, Hamm said.
The Bakken is the largest oilfield in the world that doesn’t have a primary pipeline serving it. That puts us at a severe disadvantage,” he said.
Hamm has been a strong supporter of North American energy independence, saying the country should invest its money on oil and natural gas production in North Dakota, Oklahoma and other parts of the country instead of in the Middle East.
Cramer asked if North America could produce all its own energy within five years.
We’re getting close to that,” Hamm said. “I have said that within 10 years, North America could be energy independent. In five years, I don’t think we’ll be using a whole lot of Mideast oil if we don’t want to, and we will be more secure.”
Pipeline company TransCanada Inc. had planned to trap and relocate hundreds of the endangered American burying beetles along Keystone’s proposed path, but new rules by the U.S. Fish and Wildlife Service prevent the pipeline developer from moving the hiding bugs until the project receives federal approval.
An official with the Center for Biological Diversity, which sued the federal government last year and prompted the rule change, said the decision could set back Keystone’s construction by up to a year because the insects can only be moved in the spring and summer.
A TransCanada spokesman told the World-Herald that it is too soon to know how the new rules would affect construction, but that the company will work with the new regulations.
There’s a lot of ways to deal with this,” TransCanada spokesman Shawn Howard said.
Construction of the Keystone XL is expected to take two years, and work could be adjusted to allow for removal of any beetles without affecting that timetable, Howard said.
The American burying beetle has been causing heartburn for oil and gas companies in Oklahoma for more than a decade.
The insect has been listed as an endangered species since 1989, but regulations were expanded in 2002 when it was discovered that drilling and pipeline operations can harm the species by disturbing larvae even though the adult beetle is only active from May to September.
To ensure the insect’s safety, environmental regulations require companies to hire biologists and survey areas for the beetles before they dig in areas where they may be found. If any of the species are found in an area, biologists must trap or bait them away.
Unlike most endangered species, the burying beetle is not limited to a specific habitat. The bug once thrived in 35 states and three Canadian provinces, but decades of development have driven the species to near extinction, conservationists say.
Over the past 15 years, the American burying beetle has been found only in seven states along the periphery of its former range.
Oklahoman native T. Boone Pickens is pitching a new idea as part of his Pickens Plan to reduce the nation’s reliance on OPEC oil.
In a two-minute video posted on his website, Pickens suggests a North American energy alliance to help the United States, Canada and Mexico maximize their resources.
“We are obviously the market for their oil. They are both exporters of oil. This is the safest oil that we can bring into our country. We should bring the countries together.”
Pickens said the U.S. should approve the Keystone XL pipeline to improve energy security and create a market for Canada’s oil.
He said Canada also could provide additional markets for U.S. natural gas.
Pickens said Canada provides more than 3 million barrels of oil a day to the U.S., while Mexico contributes more than 1 million barrels each day.
“These countries are extremely important to us and we’re extremely important to them. Tie up with them, have a NA energy alliance and it would make our country much, much more secure.”
The Pickens Plan, which is supported by more than 1.7 million Americans, is Pickens’ vision of using abundant American natural gas to break the country’s dependence on foreign oil.