September 2, 2008 / 9:44 PM / 9 years ago

Chesapeake Energy in talks on Marcellus stake

NEW YORK (Reuters) - Chesapeake Energy Co (CHK.N) is in discussions with “more than one and less than a handful” of companies interested in buying a stake in its Marcellus shale properties, CEO Aubrey McClendon said on Tuesday.

Chesapeake, which has said it became the largest U.S. natural gas producer during the second quarter, has said it wanted to sell part of its holdings in the shale plays, which are believed to hold vast quantities of natural gas.

McClendon, in an interview with Reuters, declined to comment on whether state-run China National Petroleum Co was among the potential buyers. Chinese media has reported that the company was interested in partnering with Chesapeake.

“We’re happy to talk to anyone around the world who is interested in the U.S. gas business,” he said, referring to comments he made earlier in the day to investors that the buyer would be a non-U.S. company.

Also on Tuesday, Chesapeake announced it would sell a 25 percent stake in its Fayetteville Shale assets in Arkansas for $1.9 billion to BP Plc (BP.L). It was the second big acreage deal with BP in two months.

Chesapeake has been at the forefront of U.S. energy companies’ efforts to boost production from shale rock formations that were only once viewed as too difficult and expensive from which to extract gas.

But a surge in gas prices and new drilling technologies helped fuel a land rush that pushed energy companies to buy up much of the prospects.

Those purchases, as well as the high costs of drilling in shale, have prompted Chesapeake to sell part of their holdings to raise cash and reduce their risk.

Chesapeake also has said it was mulling a potential spin-off of its midstream gas assets, which process and ship the fuel to trading hubs.

While McClendon said there was a “100 percent chance” the company would strike a deal for the Marcellus, he said there was a “50-50 chance” the company would split off its midstream assets into a master limited partnership.

Those assets are not yet profitable because they are being expanded to reach new production wells, he said, and Chesapeake would likely team up with a financial partner to help fund their growth.

“We need a non-traditional partner for the growth phase and then we can think about further monetizing the business once we cross the line into cash flow profitability,” he said.

McClendon said he was very comfortable with the company’s debt levels, which stood at more than $13 billion at the end of June, and that Chesapeake’s hedging program gave it protection against much of the drop in natural gas prices.

Natural gas prices have sunk by nearly 50 percent since early July when they reached a peak at $13.577 per million British Thermal units.

Aubrey said he expected prices to stabilize between about $8 to $11 over the coming months.

Shares in Chesapeake closed down 6.5 percent at $45.24 per share on Tuesday, in line with the broader sell-off in energy companies as oil and gas prices fell as the threat to production from Hurricane Gustav eased.

Reporting by Matt Daily; Editing by Phil Berlowitz and Carol Bishopric

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