Chesapeake Energy to offload Utica Shale acreage in US for $2bn

Chesapeake Energy has signed a $2bn agreement to divest its Utica Shale acreage in Ohio, US, to oil and gas firm Encino Acquisition Partners to pay off debts.

The total consideration for the transaction includes a $100m contingent payment linked to future natural gas prices.

The assets being sold include 320,000 net acres in the commercial window for Utica Shale development, 920 operated and non-operated wells, as well as associated infrastructure and equipment.

Last year, these assets produced an average of around 107,000boe/d on a net basis.

Chesapeake Energy president and CEO Doug Lawler said: “By divesting our position in the Utica and using the proceeds for debt reduction, we will not only significantly improve the health of our balance sheet, but we will also accelerate progress toward our strategic goals of reducing our debt, improving our margins and reaching sustainable free cash flow neutrality.”

“We remain committed to generating higher returns on invested capital by directing our investments to the highest-return opportunities across our five diverse, multi-zone basins.”

The transaction will allow Chesapeake to eliminate all future Utica Shale midstream and downstream commitments of $2.4bn.

The company is focused on investing in its Powder River Basin (PRB) assets in Wyoming to drive organic oil volume growth, enhance margins and improve free cash flow.

Next year, the company’s overall oil production is expected to grow around 10% from this year, with further growth projected for 2020.

Lawler added: “The underlying strength of our portfolio, along with the overall price advantages we currently realise from our remaining oil assets, position Chesapeake to replace the divested EBITDA within a year following the close of the transaction.”

On 22 July, Chesapeake reported a 78% increase in net production from the PRB assets compared to the average 2017 fourth quarter rate.

The company expects to double total net annual production from the PRB next year.