Replies to post #2040 on The Rising Influence of Rising Affluence

[DewDiligence]

CHK overextended into shale…

Did anyone comment on that contemporaneously?

[DewDiligence]

Total Buys $2.3B Utica-Shale Stake from CHK

[This marks the third substantial purchase in the Utica shale by medium/large companies, the other two being the buys by XOM (#msg-67351703) and HES (#msg-66906176, #msg-66914159). CHK has been seeking to reduce its debt by selling shale assets (#msg-59622539).]

http://online.wsj.com/article/SB10001424052970203550304577137490533881580.html

›JANUARY 3, 2012
By RYAN DEZEMBER

French oil giant Total SA purchased a minority stake in a swath of Chesapeake Energy Corp.'s Ohio shale discovery for $2.32 billion, in a deal that shows foreign companies' growing appetite for U.S. oil-and-gas assets.

The investment moves Chesapeake, the second-largest natural-gas producer in the U.S., toward its goal of reducing long-term debt by 25% while boosting production 30%.

It also kicks off a year in which the Oklahoma City energy explorer has told investors to expect another $7 billion worth of asset sales and joint ventures, apart from the Ohio deal. Chesapeake has been under pressure from some shareholders and analysts to reduce spending and pare debt. The company is responding with asset sales but also says it doesn't want to pass up opportunities to buy shale properties before prices rise.

In recent years, international energy companies have flocked to the U.S. to get a piece of the booming business of domestic shale drilling. Some analysts and industry insiders believed such interest would wane once the companies were able to master and then export the expertise needed to unlock shale formations.

But the Ohio deal, Total's second joint-venture with Chesapeake, shows that big energy companies are viewing North America's resurgent oil-and-gas production as a long-term investment opportunity.

Total will acquire a 25% stake in 619,000 acres spread across 10 Ohio counties in what the companies describe as the "liquids rich" section of the deeply buried shale. That means they expect wells will yield oil and natural-gas liquids such as butane, ethane and propane, which trade at a premium to natural gas. Such finds could make drilling lucrative despite a recent decline in U.S. natural-gas prices to two-year lows.

Yves-Louis Darricarrère, president of Total's exploration and production unit, said in a statement the deal is "consistent with our strategy to develop positions in unconventional plays with large potential and, in this case, with value predominantly linked to oil price."

From Total, Chesapeake will receive $2.03 billion, with Chesapeake's earlier partner, Houston-based EnerVest Ltd., collecting $290 million. About $610 million of Chesapeake's take was paid when the parties quietly closed the deal on Friday. The remaining $1.42 billion will be paid to develop the fields, the companies said.

Chesapeake expects to use those drilling funds by the end of 2014. The money will help Chesapeake "develop the play more aggressively than we could have with our own resources," said Chief Executive Aubrey McClendon.

The company said in early November that it had signed a letter of intent to sell a stake in some of its Utica Shale holdings in eastern Ohio for more than $2 billion, but declined to name the buyer.

Chesapeake specializes in finding new shale fields and quickly leasing huge tracts of drilling land; it often brings in a partner to help recover the land costs and pay for drilling.

In the first quarter of 2011, the company reduced long-term debt to $9.9 billion, down from $12.6 billion at the end of 2010. That figure swelled soon after, ending near $11.8 billion at the end of the third quarter, in part because of the company's spending in Ohio, its filings show.

The Total deal, along with an $865 million cash-and-stock pipeline sale to its publicly traded subsidiary, Chesapeake Midstream Partners LP, announced last week, gives Chesapeake about $1.2 billion in cash to pare debt in its year-end results.‹