Summary
Chesapeake Energy Corporation (CHK) filed an 8-K on November 4, 2011, detailing significant strategic transactions focused on its Utica Shale assets. The company announced a joint venture (JV) with an undisclosed international major energy company, granting the partner a 25% interest in approximately 650,000 net acres in the Utica Shale play for $15,000 per net acre, totaling approximately $2.14 billion for CHK. This consideration includes $640 million in cash and $1.5 billion as a drilling and completion cost carry, expected to be fully received by year-end 2014. CHK will operate the JV, with the partner having options for future acreage and midstream infrastructure participation. In parallel, CHK completed a $500 million private placement of perpetual preferred shares in its subsidiary, CHK Utica, L.L.C., to EIG Global Energy Partners. This subsidiary holds approximately 700,000 net leasehold acres in the Utica Shale. The preferred shares carry a 7% annual distribution and provide an overriding royalty interest. CHK retains all common interests and has committed to drilling a minimum number of wells, underscoring its continued commitment to developing these valuable assets while leveraging external capital and expertise.
Key Highlights
- 1Chesapeake Energy (CHK) enters into a joint venture for its Utica Shale assets, selling a 25% interest in ~650,000 net acres for ~$2.14 billion.
- 2The JV consideration includes $640 million in cash and a $1.5 billion drilling and completion cost carry, expected by year-end 2014.
- 3CHK will serve as the operator of the JV, retaining operational control and options for the partner to participate in future acreage and midstream infrastructure.
- 4Completion of the Utica Shale JV is subject to definitive agreements and expected by mid-December 2011.
- 5CHK completed a $500 million private placement of perpetual preferred shares in its subsidiary, CHK Utica, L.L.C., to EIG Global Energy Partners.
- 6CHK Utica holds ~700,000 net leasehold acres in the Utica Shale, with CHK retaining all common interests.
- 7The preferred shares carry a 7% annual distribution and an overriding royalty interest, with CHK committed to drilling a minimum of 250 net wells through 2016.