Southwestern Energy snaps up assets in Marcellus, Utica from Chesapeake
Chesapeake Energy continued its sell-off of gas drilling operations in the Marcellus and Utica shales Thursday with its biggest withdrawal from Appalachia.
Pennsylvania’s biggest shale gas producer agreed to sell 435 shale wells, 1,100 conventional wells and the rights to drill in more than 400,000 acres to Houston-based Southwestern Energy Co. for $5.375 billion.
“I certainly think this is consistent with what we’ve seen from Chesapeake,” said Scott Hanold, an energy analyst at RBC Capital Markets.
During the past 18 months, the Oklahoma-based company has sold chunks of Marcellus acreage and wells to competitors, including Cecil-based Rice Energy and Chief Oil & Gas. Most of the land and wells in the latest deal are in northern West Virginia, though the footprint includes the western half of Washington County in Pennsylvania.
“Chesapeake obviously has a need to reduce some capital expenditures. This had been seen as an expendable area by them,” Hanold said.
Southwestern CEO Steve Mueller said the area is getting significant investment in pipelines and other infrastructure to move gas and liquids to markets, and that his company worked with Chesapeake during negotiations to arrange for more contracts on those lines.
“That southwest corner of Pennsylvania, Ohio and northwest West Virginia was ahead of the game very quickly,” Mueller said during a conference call with analysts. “It’s got more new projects coming on there than anywhere in the Northeast.”
Chesapeake’s stock increased $3.02 to $20.79, a 17 percent jump. Southwestern’s stock dropped $3.72 to $31.97, a 10 percent decrease.
Norwegian company Statoil, which has a 33 percent stake in the acreage, could break up the deal with its own offer in the next 30 days. If it goes through, though, the sale would give Southwestern a third core area for production, adding to its big operations in Northeast Pennsylvania and the Fayetteville shale in Arkansas.
Southwestern, which was Pennsylvania’s fourth-largest shale gas producer in the first six months of the year, plans to put up to six drilling rigs in the new acreage next year and up to 11 by 2017. It predicts 20 years of drilling at that pace.
“This is great rock. It has enough wells in it now to show it’s great rock,” Mueller said.
For Chesapeake, it’s the latest deal signalling a partial back-out from its big foray into Appalachia by former leader Aubrey McClendon, whom the company forced out in April 2013. Hanold said Chesapeake has held onto core drilling areas in the Marcellus in Northeast Pennsylvania and the Utica in Ohio.
“Earlier this year, we committed to unlocking the significant value inherent in this asset, recognizing the disconnect of its perceived value within our portfolio,” CEO Doug Lawler said in an announcement. “It’s important to note that this transaction has no impact on our expected growth profile or on our views around maintaining a disciplined capital program.”
In July, Chesapeake sold 22,000 leased acres and a dozen Marcellus wells in western Greene County to Rice Energy for $336 million. Last year it sold wells and leases in Eastern Pennsylvania to a partnership led by Dallas-based Chief for $500 million.
Southwestern said it arranged a $5 billion loan from Bank of America and would consider selling non-core assets to help finance the deal.
“They were looking for opportunities that fit well with their business model,” Hanold said, noting the new area has fewer pipeline constraints than the northeast corner of the Marcellus.
David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or [email protected]