(Corrects acquirer to Sinopec Group in the first paragraph)
* Selling 50 pct stake in 850,000 shale field acres
* Some analysts expected Chesapeake to get a better price
* Chesapeake shares fall 4 percent
By Swetha Gopinath
Feb 25 Chesapeake Energy Corp will sell
a 50 percent interest in some of its oil and gas properties in
the Mississippi Lime shale formation to Sinopec Group for $1.02
billion cash, a valuation that fell short of some expectations.
Shares of Chesapeake declined 4 percent in morning New York
Stock Exchange trading following news of the deal on Monday.
Hammered by prolonged low natural gas prices and a hefty
debt load, Chesapeake plans to sell up to $7 billion of assets
this year to help close a $4 billion gap between capital
expenditures and cash flow.
A number of Wall Street analysts had expected Chesapeake to
bring in a higher valuation for the Mississippi Lime deal, but
they welcomed the liquidity boost the cash deal brings.
"We're certainly not bowled over with the valuation paid,
but Chesapeake remains in a position of needing to pare down the
portfolio and increase liquidity," analysts at Wells Fargo wrote
to clients. "This transaction helps towards accomplishing both
Shares of SandRidge Energy, a U.S. oil and gas
company that has 1.85 million acres in the Mississippi Lime,
fell almost 5 percent following news of the Chesapeake deal.
Sinopec will pay about $2,400 per acre, below the $3,400 per
acre analysts at CapitalOne Southcoast in New Orleans had
expected, the analysts said.
Oil and gas production from the assets averaged 34,000
barrels oil equivalent in the fourth quarter, and proved
reserves are estimated at 140 million barrels oil equivalent,
HUNGRY FOR EXPERTISE
Output from shale fields in the United States and Canada has
jumped over the last three years due to the advent of drilling
methods such as hydraulic fracturing.
Companies in China, which has the largest shale reserves in
the world, are keen to get the know-how for drilling in such
China's state-owned CNOOC Ltd has struck a deal to
buy Canadian oil and gas company Nexen Inc for $15.1
billion, while Pioneer Natural Resources Co said last
month it would sell a stake in its assets in the Wolfcamp shale
field of Texas to Sinochem Group for $1.7 billion.
Sinopec, Asia's largest oil refiner, will buy 50 percent of
Chesapeake's 850,000 acres of net oil and natural gas leasehold
properties in the Mississippi Lime shale field in northern
Oklahoma, the companies said.
Chesapeake has about 2.1 million acres in the Mississippi
Lime formation, which straddles northern Oklahoma and southern
Chesapeake will be the operator of the properties owned with
Sinopec, and development costs will be shared equally by the two
Chesapeake's production from the Mississippi Lime region
jumped 208 percent to an average of 32,500 barrels of oil
equivalent per day in the fourth quarter, the company reported
About 45 percent of the total output was oil, 46 percent was
natural gas, and the rest was natural gas liquids.
Chief Executive Aubrey McClendon, who co-founded Chesapeake
in 1989, is stepping down on April 1 following a tumultuous year
during which the company faced a liquidity crunch and a
Sinopec struck a deal with Devon Energy Corp in
January 2012 to buy a third of the U.S. oil and natural gas
producer's interest in five developing fields for about $2.2
In October 2011 a unit of Sinopec signed a deal to buy
Canadian oil and gas explorer Daylight Energy Ltd for more than
Shares of Chesapeake fell 87 cents to $19.63.
(Additional reporting by Anna Driver in Houston, writing by
Krishna Das; Editing by Rodney Joyce, Don Sebastian and John