July 27, 2018, by Ryan Collins
Chesapeake Energy Corp. agreed to sell its Utica Shale assets in Ohio to closely held Encino Acquisition Partners for about $2 billion as the U.S. natural gas giant whittles down its debt and streamlines operations.
The agreement announced Thursday is expected to close in the fourth quarter and marks Chief Executive Officer Doug Lawler’s biggest transaction in 3 1/2 years. Almost all of the proceeds will be used to pay debt, Chesapeake said in the statement. The Oklahoma City-based driller’s shares and bonds soared.
America’s third-largest gas producer has seen rough times as prices for the heating and power-plant fuel plummeted. The company, once valued at almost $40 billion and now worth just one-tenth of that, has been punished by investors for a debt load amassed by late founder Aubrey McClendon.
The Utica asset sale will help retire a large chunk of debt, Lawler said in a phone interview on Thursday.
“The Utica was the best asset for us to divest of and what we have remaining in our portfolio is five very strong assets for future growth,” Lawler said.
Encino is a 2017 creation of the Canada Pension Plan Investment Board and a Houston-based management team led by Hardy Murchison. The pension board plans to invest $1 billion into the partnership and own 98 percent of it, according to a separate statement.
Chesapeake’s $1.3 billion of 8 percent coupon bonds due 2027 rose 3.25 cents to 104 cents on the dollar according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. A 4.875 percent coupon bond due 2022 rose 2.3 cents to its highest level since 2015.
Chesapeake’s shares jumped 10 percent to $4.85 at 5:40 p.m. Thursday in New York.
Chesapeake will no longer look to asset sales in the future to shrink its ratio of debt to profit, Lawler said. Instead, he’s aiming to achieve that target by raising production.
Jettisoning the gas-rich Utica assets also will aid Lawler’s efforts to transform Chesapeake into a company focused predominantly on crude oil production. As of the end of 2017, more than 80 percent of the Oklahoma City-based explorer’s output was gas. Next year, he’s targeting 10 percent growth in the company’s oil production, according to the statement.
Lawler plans to boost crude output by focusing on the company’s “oil-growth engine”: The Powder River Basin in Wyoming. Daily net production from the area will more than double in 2019, according to the statement.
The sale also frees Chesapeake from almost $3 billion in pipeline contracts and related expenses, according to the statement.