Chesapeake Energy Corporation Announces Marcellus Shale Joint Venture and International Unconventional Natural Gas Exploration Alliance with StatoilHydro

BELOW FROM CHESAPEAKE NEWS RELEASE, NOTE THAT 20% CHK INTEREST WAS SOLD TO PLAINS EXPLORATION. FOR COMPLETE NEWS RELEASE SEE CHESAPAKE WEB SITE.

"Chesapeake has now completed three shale joint ventures that collectively value Chesapeake's Haynesville, Fayetteville and Marcellus Shale assets (before the joint ventures) at approximately $34 billion. Through these transactions, Chesapeake sold a 20% working interest in its Haynesville Shale assets to Plains Exploration & Production Company (NYSE:PXP) for $3.3 billion (thereby retaining an 80% working interest valued at $13.2 billion), a 25% working interest in its Fayetteville Shale assets to BP America (NYSE:BP) for $1.9 billion (thereby retaining a 75% working interest valued at $5.7 billion) and now has agreed to sell a 32.5% working interest in its Marcellus Shale assets to StatoilHydro for $3.375 billion (thereby retaining a 67.5% working interest valued at $7.0 billion). The total consideration to CHK from these sales has been approximately $8.575 billion, of which approximately $4.0 billion has been (or will be) in cash and approximately $4.575 billion is in drilling and completion cost carries. Furthermore, CHK retains the remaining ownership percentages of the joint ventures that have been valued at approximately $26 billion, or over $40 per share of value from just these three shale joint venture transactions. These joint ventures clearly demonstrate the enormous value of Chesapeake's shale natural gas assets and the unique capability of our organization to develop them."

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Permalink Reply by The_Baron on November 12, 2008 at 9:15
They are going to have to make a good profit and reduce their debt for a few quarters in a row to see any real rise in the stock price.
Permalink Reply by Two Dogs, Pirate on November 12, 2008 at 9:37
CHK stock stayed in the 30 dollar range for years then goes up for less than a year to a price that was artifically high. They shot themselves in the foot by pulling stunts to run the price of their stock up.
Permalink Reply by Grillin' - MmmMmm on November 13, 2008 at 4:50
Baron...their debt really doesn't have anything to do with this. Its long term paper with no immediate issues. Their big problem is to quit spending money like the federal gov't!! They are doing this so next quarter should be okay. Take a look at their financials...its pretty simple for them...spend less than you take in. Their debt payment is pennies on the dollar versus their drilling/leasing expenses.

Two Dogs: which stunts did they pull to run up the price? Leasing hundreds of thousands of acres of valuable hydrocarbon leases at super-inflated prices. Most companies look at what they paid in NW La and laugh at them for paying too much. But it sure benefited a lot of people! But this stunt is really all their business is...lease land, drill wells, produce gas. No insult meant here, but tell me more about the stunts that ran up their price. I'm interested as it would help me with some due diligence.
Permalink Reply by Dion Warr, CPL on November 13, 2008 at 9:57
Actually, CHK was only at $30 for about 2 years, from 2005-2007. The stock started picking up steam in late 2007, and surged around the time of the announcement in March, spiking at $74. It then retreated slowly from there, and fell of precipitously in the last quarter.

Before that, CHK had all but imploded in the late 90s, going from a $30 stock to $0.75 in Feb. '99. During the time leading up to that point, CHK had heavily positioned (and mired) itself in the Austin Chalk trend coming eastward into Louisiana. Then, as now, it had committed large amounts of money on collateral and revolvers to finance its 'win at all cost' approach to lease acquisition. The strategy worked as long as demand was high, and positive media and price pressure served to float the ship. Prices also tend higher when the CEO continues to surge the stock price by buying on the uptick (as Aubrey Mac had done).

When the bottom fell out in 1998-1999, and oil went to $8-$10 per bbl, they took a bath. This time, they've hedged by taking partners in at premium prices, which have assisted in paying down their previous acquisition and E&P costs.

Aubrey Mac took a big hit on the plummeting oil and gas prices this time, however. Insider trade documents showed three large transactions in early October, involving over 30,000,000 shares being dumped for over $560MM (which sounds big, although it works out to about $18.70 per share average over the three days, an approx. 70% discount of the share price just 6 -7 months earlier).

In a more prudent model for E&P, usually the lease bonus is more or less stable, and is a relatively small cost of doing business. This allows the company to expend resources on evaluating and drilling prospects. Revenue comes from production, the only other outstanding cost being royalty payout. In cases of "gold fever", this doesn't pan out, as mineral owners get paid more speculative prices up front to acquire the same rights that the were paid more reasonable prices earlier, either because of early proven production, hype, or competition, or some combination thereof.
Permalink Reply by The_Baron on November 12, 2008 at 9:59
I think they got what they deserved. All CHK has done is run out the independents.
Permalink Reply by Martin on November 12, 2008 at 11:18
Mmmarkk --
"Fighting in court....?" With who? Over what? There's nothing in the initial posting about legal issues.
Permalink Reply by Grillin' - MmmMmm on November 13, 2008 at 4:45
Came about as part of the discussion...now that CHK has all of this money from the sale, will they pay the drafts on leases that aren't being honored. That's how it got in the thread. My response was they probably won't pay without being forced to...in court.
Permalink Reply by Martin on November 12, 2008 at 11:14
Well, this seems to trump about my post about the Bloomberg article from 11/5 about BP buying the CHP Marcellus Shale holdings. Overcome by events we say in the trade....
Permalink Reply by Martin on November 13, 2008 at 12:21
About the Marcellus shale sale -- The purchaser is Statoil Hydro is the second largest supplier of NG in Europe. The company payed $3.375 billion for a 32.5% interest in the shale. The per acre price varied form $5,500.00 to $5,800.00. Note that Chesapeake is very cheap at the current per share price. Might be tempting to purchase for someone with deep pockets and a long term view of things.

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