Working to reduce its debt load, Chesapeake Energy Corp. (NYSE: CHK) has agreed to sell nearly 42,000 net acres in the Anadarko Basin STACK play for $470 million to Newfield Exploration Co. (NYSE: NFX).
Bolt-on acreage for Newfield
The acquisition expands Newfield’s footprint in the play to approximately 265,000 net acres offering overlap with the company’s existing acreage in Oklahoma’s Kingfisher, Blaine, Dewey, and Canadian counties. More than 90% of the acreage to be acquired is held-by-production.
Of the total consideration, approximately $50 million is associated with proved developed producing (PDP) reserves and reimbursement for recent STACK wells which are currently drilling or have been drilled and are planned for completion. Excluding PDP and reimbursement allocations, the undeveloped acreage value equates to approximately $10,000 per acre.
Current net production from the assets is approximately 3,800 boe/d (55% liquids). In a statement, Newfield said it expects production to more than double by year-end 2016 as recently drilled wells are completed and turned to sales.
Including this transaction, Newfield estimates that its cumulative investments in STACK acreage to date total less than $3,000 per acre. Newfield's average working interest across the 265,000 net acres in STACK would be approximately 50%.
“This bolt-on acquisition is ideal for Newfield, combining strategic fit in a growing resource play where we have a clear competitive advantage," said Newfield chairman Lee Boothby. "As the discoverer and founder of STACK, we have drilled more than a quarter of the play's total wells and are the proven leader."
Newfield expects to fund the transaction with cash on hand.
Deal moves CHK to 2016 divestiture target
Analysts note the sale bodes well for Chesapeake as it puts the company at the low end of its full-year goal for non-core divestitures of $1.2-$1.7 billion, but caution that more work is needed.
The valuation looks fair, said Raymond James analysts in a note Friday, but the real benefit to Chesapeake is that the transaction puts the company within striking distance of its 2016 asset sales target “without compromising its core asset base” and has no impact on the borrowing base. “All told, acquisitions completed thus far should only impact 2016 production by ~35 Mboe/d (~6%), with a relatively high 60% gas weighting,” the analysts continued.
With substantial debt maturities coming due in the next few years, Raymond James analysts say the company still has a lot of work to do. Wunderlich Securites analysts agree, but note the “seemingly endless portfolio of assets provides optionality to improve its balance sheet.”
Bottom line, said Wunderlich analysts, “With so many assets in the portfolio and an ample liquidity position, we do believe CHK will be able to survive the downturn and get to the other side with a good portfolio of assets, but we remain Hold rated at this time as we await more clarity on the financial picture for the long-term.”
The transaction will have an effective date of April 1, 2016 and closing, expected in the second quarter of 2016, is subject to customary adjustments.