Chesapeake Exiting Mid-Continent Region To Fund Turnaround Efforts

Callum Turcan profile picture
Callum Turcan
4.74K Followers

Summary

  • Why it appears Chesapeake Energy Corporation is exiting the Mid-Continent region.
  • What management may have in store.
  • A recent asset sale raises $170 million while having an immaterial impact on Chesapeake's cash flow generation.
  • Where Chesapeake may turn to for its next piecemeal divestment.

Chesapeake Energy Corporation (NYSE:NASDAQ:CHK) has really scaled back in the Mid-Continent region and investors should take note. Back in May 2017, Chesapeake Energy Corporation was running four drilling rigs and two completion crews in Oklahoma. That has since fallen down to one rig and one frac crew as drilling & completion activity levels off. Let's dig in.

Past actions

There was a time when Chesapeake Energy Corporation was sitting on 2 million net acres in the Mid-Continent region. Over the past few years, the company sold off 1.1 million net acres in the play that housed 11,000 operated and non-operated wells which raised $1.2 billion in cash (not sure if that includes the latest deal). Cash that was used to retire VPPs (volumetric production payments), retire debt, and keep the lights on during dire times by covering (part of) its outspend.

A large chunk of those proceeds came from its Meramec divestment, when Chesapeake sold 42,000 net acres in the Anadarko Basin (part of STACK, home to core Meramec opportunities) to Newfield Exploration Co. (NYSE:NFX) for $470 million last year. Other bits and pieces have been sold off in small chunks.

Recently, Chesapeake divested 23,000 net acres in the region for $170 million. That acreage was set to generate $23 million in EBITDA next year, equal to about 1% of its expected EBITDA generation. Management noted that this acreage was producing 300 barrels of oil per day, but it must be producing some natural gas and/or natural gas liquids as well to get the $23 million annual EBITDA figure. Most likely it was a gas-heavy area.

During its latest update, Chesapeake noted that it retained 975,000 net acres (97% held by production, so drilling activity isn't needed to retain most of that acreage) producing 55,000 BOE/d net (30% oil mix) from 3,200 operated and 4,200 non-operated producing wells

This article was written by

Callum Turcan profile picture
4.74K Followers
Associate Director of Research, Co-Editor of Valuentum's Newsletters, Portfolio Manager-----Valuentum (val-u-n-tum) [val-yoo-en-tuh-m] Securities Inc. is an independent investment research publisher, offering premium equity reports, dividend reports, and ETF reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Independence and integrity remain our core, and we strive to be a champion of the investor. Valuentum is based in the Chicagoland area. Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information.-----Please read our Disclaimer that applies to all articles published on Seeking Alpha: http://www.valuentum.com/categories/20110613.

Disclosure: I am/we are long CHK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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