Chesapeake Energy sells shale acreage, pipelines for $6.9 billion

(Reuters) - Chesapeake Energy Corp is selling $6.9 billion in gas fields and pipelines, a move that will help the troubled energy company repay part of its massive debt load and fund this year's operations.

The company is selling most of its assets in the Permian Basin to Royal Dutch Shell Plc and Chevron Corp, as well as most of its remaining infrastructure network.

The company, which has been selling assets to meet an estimated $10 billion funding gap, said it would use the proceeds to pay off $4 billion in debt later this year.

The news pushed Chesapeake shares up nearly 1 percent in early trading.

The deal is part of the company's strategy to shift away from cheap natural gas into more lucrative crude oil. It also comes as Chesapeake is under investigation by the U.S. Department of Justice into possible criminal antitrust violations related to the purchase and lease of land in Michigan.

Chesapeake's chief executive, Aubrey McClendon, said the company has reached about 85 percent of its goal to bring in $13 billion to $14 billion in asset sales this year.

"These transactions are significant steps in the transformation of our company's asset base to a more balanced portfolio among oil, natural gas liquids and natural gas resources and production," McClendon said in a statement.

The deal will help the company retire part of its massive debt load, which was $14.33 billion as of June 30. The company's market value is roughly $13.37 billion.

The asset sales are "a positive step, but they're not there yet," said Argus Research analyst Phil Weiss. "If this company doesn't do the asset sales and raise enough cash, they're not going to survive."

Chesapeake has been working to sell assets in the Permian Basin since February. The company holds 1.5 million acres in the basin, spread across western Texas and southeastern New Mexico.

Chesapeake is selling about 618,000 acres in the southern Delaware Basin portion of the Permian Basin to Shell, which said it is paying $1.94 billion.

About 264,000 acres in the Permian are being sold to Chevron. Terms of that deal were not disclosed, and a Chevron representative was not immediately available to comment.

In total, Chesapeake is raising about $3.3 billion from the sale of the Permian Basin assets. Analysts had hoped the Permian assets would bring in at least $4 billion.

"Is this a fire sale? Maybe, maybe not. But it's certainly less than (Chesapeake) would have liked us to think previously," Weiss said. "When you look at the acquirers -- Chevron and Shell -- I certainly wouldn't expect them to overpay."

Chesapeake said in May that more than 10 companies had looked at the Permian acreage. Investment bankers said some potential buyers had blenched at the assets because of concerns about levels of natural gas liquids in the package as well as the need for an aggressive drilling program to hold on to some of the land.

Also Wednesday, Chesapeake said it would raise $3 billion from selling nearly all of its remaining pipeline and related assets in several transactions. The company previously announced the largest of the transactions - a $2.7 billion deal pending with Global Infrastructure Partners - when it signed a letter agreement with the infrastructure company in June. [ID:nL4E8H88RP] It said then that the deal would bring in more than $2 billion.

The company is also selling some land in Ohio's Utica shale formation for a total of $600 million in four separate deals. After the deals close, Chesapeake will have about 1.3 million acres left in the Utica.

Reuters reported earlier this year that McClendon has taken $1.1 billion in personal loans against his stakes in Chesapeake wells during the past three years.

The loans, which came mostly from an investment-management company that also did business with Chesapeake, had not been disclosed to shareholders. The Securities and Exchange Commission and the Internal Revenue Service have launched inquiries.

Chesapeake shares rose nearly 1 percent to $20.40 in early trading. As of Tuesday's close, the stock is down 9.8 percent so far this year.

(Reporting by Ernest Scheyder and Michael Erman in New York and Swetha Gopinath in Bangalore; Editing by Sofina Mirza-Reid and Maureen Bavdek)

Source: http://news.yahoo.com/chesapeake-energy-raise-6-9-billion-asset-sale-111422291--finance.html

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