Cash to be deployed into financial, operational improvements
Chesapeake Energy Corp. (NYSE:CHK) has closed its asset sale to Southwestern Energy Co. (NYSE:SWN) and completed additional initiatives as it looks to strengthen its financial position.
The Oklahoma City, OK-based company closed the previously announced sale of its assets in the Southern Marcellus shale play and a portion of the Eastern Utica shale play to Southwestern for net proceeds of $4.975 billion. The $400 million adjustment to the previously reported $5.375 billion sale price is attributable to a settlement for various items, including Southwestern’s waiver of any future claims related to title defects and environmental liabilities.
The properties sold to Southwestern consist of 413,000 net acres and approximately 1,500 wells located in northern West Virginia and southern Pennsylvania, along with related property, plant and equipment. Net production of the divested properties in mid-December was approximately 57,000 barrels of oil equivalent (boe) per day. This represents 7% of a new company record for total production that was achieved last week of 770,000 boe per day.
A 'mountain of cash'
Doug Lawler, Chesapeake’s CEO, said, “This transaction marks another significant event in Chesapeake’s transformation and solidifies our strong financial position. With the closing of this transaction and the available borrowing capacity under our unsecured revolving credit facility, Chesapeake now has a liquidity position of approximately $9 billion, putting Chesapeake in an advantageous position to enhance shareholder value in this volatile commodity price market. Consistent with our financial strength and our focus on enhancing shareholder value, Chesapeake’s board of directors has authorized a $1 billion common stock repurchase program.”
Despite the deal closing $400 million below the originallly announced price, Wunderlich Securities analysts view the deal positively, calling the deal "hugely incremental" for Chesapeake given the cash influx (roughly equal to its 2014 capex program). "Chesapeake Energy officially has a mountain of cash," they said.
Calling the deal a "an absolute home run" operationally and financially, the analysts believe the company is poised to improve in 2015 despite the difficult commodity price environment.
"The nearly $5 billion payday puts the company's cash balance in great shape and when combined with the recently closed (and undrawn) $4 billion credit facility the company has $9 billion in liquidity currently. While being strapped for cash used to be a CHK staple we believe the new regime has the opposite "problem" of too much cash today. We don't expect this "problem" to last long as CHK deploys it into financial and operational improvements," the analysts continued.