Chesapeake sells Eagle Ford and Haynesville assets to EXCO for $1B

Chesapeake Energy Corp.

Oklahoma City-based Chesapeake Energy Corp. (NYSE:CHK) announced the execution of agreements to sell assets in the northern Eagle Ford Shale and Haynesville Shale to Dallas-based EXCO Operating Company LP, a subsidiary of EXCO Resources Inc. (NYSE:XCO), for aggregate proceeds of about $1 billion, of which approximately 90% will be received upon closing. Payment of the remaining proceeds will be subject to customary post-closing contingencies.

The transactions are expected to close in the third quarter of this year.

In the northern Eagle Ford Shale, EXCO has agreed to acquire around 55,000 net acres in Zavala, Dimmit, La Salle, and Frio counties (Texas), including about 120 producing wells with average net daily production of roughly 6,100 barrels of oil equivalent during the month of May.

In the Haynesville Shale, EXCO has agreed to acquire Chesapeake’s operated and non-operated interests in about 9,600 net acres in Desoto and Caddo parishes (Louisiana). Included in the transaction are 11 units operated by Chesapeake and 42 units operated by EXCO. Average net daily production from the Haynesville properties to be sold was around 114 million cubic feet of natural gas equivalent during the month of May.

The impact of these asset sales on net production and capital expenditures was previously reflected in Chesapeake’s May 1, 2013, outlook guidance.

Douglas H. Miller, EXCO’s chairman and CEO, commented, “These acquisitions are consistent with our strategy of targeting opportunities in both existing core areas and new plays. The Eagle Ford acquisition establishes our position in the high value oil core area of the Eagle Ford shale, and delivers immediate production and reserve additions, significant resource potential, and solid economic returns. The Haynesville acquisition adds to our leading core position and provides an expanded platform to apply our technical expertise, best-in-class drilling and completion focus, and project execution skills.”

The effective dates of the Eagle Ford and Haynesville acquisitions are April 1, 2013, and Jan. 1, 2013, respectively. EXCO anticipates completing the transactions in July 2013 with the Haynesville acquisition closing first.

EXCO expects to finance the Haynesville acquisition under the company’s existing credit agreement. The Haynesville acquisition is subject to an affiliate of BG Group plc’s preferential right to acquire 50% of the Haynesville properties.

EXCO has secured a financing commitment from J.P. Morgan pursuant to which the existing credit agreement will be replaced with a new credit agreement that has an initial $1.6 billion borrowing base, which includes a $400 million bridge loan tranche, and will be utilized to finance the Eagle Ford acquisition. The undeveloped locations in the Eagle Ford are expected to be drilled and developed under a partnership with entities advised by or affiliated with Kohlberg Kravis Roberts & Co. LP, including KKR Financial Holdings LLC (NYSE:KFN).

EXCO and KKR have entered into a non-binding Memorandum of Understanding (MOU) whereby KKR will fund approximately $133 million, which represents 50% of certain undeveloped acreage included in the Eagle Ford acquisition, and become the drilling capital partner in the Eagle Ford acreage.

Chesapeake CEO Doug Lawler said, “Today’s announcement brings our year-to-date asset sales signed or closed to approximately $3.6 billion, which, combined with forecasted net operating cash flow, enables Chesapeake to fully fund its 2013 capital expenditure budget. Additional asset sales contemplated for later this year may reduce long-term debt and further enhance our financial liquidity.”

The impact of these asset sales on net production and capital expenditures was previously reflected in Chesapeake’s May 1, 2013, outlook guidance.

Jefferies & Company is acting as financial advisor to Chesapeake.


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