* Buy back cuts about $75 mln in annual dividend payments
* Says prices fell for natural gas, natural gas liquids in
* To consolidate in south of Powder River Basin via asset
* Shares up 1 pct in late morning trading
(Adds detail on preferred shares, analyst comment, updates
July 29 Chesapeake Energy Corp said it
would spend $1.26 billion to buy back all the outstanding
preferred shares issued by its CHK Utica unit, in a move to
simplify its balance sheet and eliminate about $75 million in
annual dividend payments.
The No.2 U.S. natural gas producer also said prices for
natural gas and natural gas liquids fell in the second quarter.
The company added that it would consolidate its holdings in
the southern part of Wyoming's Powder River Basin by swapping
some acreage with a private oil and gas producer.
Chesapeake's shares rose 1 percent to $27.13 in late morning
trading on Tuesday.
Analysts said the buyback would removed complexity from
Chesapeake's capital structure.
"The outlay may raise eyebrows, but we support the move to
minimize opacity on the balance sheet, even if it delays a
credit upgrade to investment grade," analysts at Sterne Agee
Group Inc wrote in a note to clients.
Chesapeake said it would buy back 1.06 million preferred
shares of CHK Utica, its subsidiary which holds acreage in
Ohio's Utica shale field.
The company had sold preferred shares in the unit to private
equity firms EIG Global Energy, Magnetar Capital and other
investors in 2011.
The shares had an annual distribution of 7 percent and a 3
percent overriding royalty interest in the first 1,500 wells
Chesapeake drilled in the field.
The company also said it would consolidate its holdings in
the southern part of the Powder River Basin by swapping assets
with RKI Exploration & Production LLC and paying the firm $450
million in cash.
Chesapeake said it would give RKI about 137,000 net acres
and its interest in 67 gross wells in the northern portion of
the basin in exchange for about 203,000 net acres as well as
interests in 186 gross wells in the southern part of the basin.
The company said the deal is expected to close in August.
Chesapeake, which is due to report results next week,
estimated its realized natural gas price after hedges averaged
$2.45 per million cubic feet (mcf) in the second quarter, lower
than $3.27 per mcf in the first quarter.
The company estimated that its realized price for natural
gas liquids, after processing and transportation costs, fell to
$21.03 per barrel in the second quarter from $29.23 in the first
(Reporting by Swetha Gopinath; Editing by Ted Kerr and Savio