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As Chesapeake Energy Corp. (NYSE: CHK) continues its strategic withdrawal from the Anadarko Basin, other E&Ps are reaping the benefits.
Chesapeake said May 5 it signed an agreement to sell Newfield Exploration Co. (NYSE: NFX) about 42,000 net acres in Oklahoma's Stack Play for about $470 million. Chesapeake has divested huge areas in Oklahoma, largely to private companies, since August.
Excluding proved developed producing (PDP) and reimbursement allocations, the undeveloped acreage value equates to about $10,000 per acre, according to Newfield.
Current net production from the assets is about 3,800 barrels of oil equivalent per day (boe/d), of which 55% is liquids. Production is expected to more than double by year-end 2016 as recently drilled wells are completed and turned to sales.
Newfield expects to fund the transaction with cash on hand. As Newfield builds its position in the play, it estimates that its cumulative investments in Stack acreage tally less than $3,000 per acre.
In addition, Newfield has identified more than 1,000 potential drilling locations on the new acreage.
"The Stack acreage sale we are announcing today accelerates value from a portion of our undeveloped acreage that currently generates very little cash flow, giving us the ability to enhance current liquidity," said Doug Lawler, Chesapeake's CEO, in a statement.
Lawler said the sale edges the company closer toward its target of an incremental $500 million to $1 billion of asset sales by year-end. The Oklahoma City-based company anticipates subsequent divestitures during the second and third quarters.
With the Newfield deal, Chesapeake has closed or signed sales agreements in 2016 worth about $1.2 billion in gross proceeds—or a net $950 million to the company. Substantially all of the company's announced asset divestitures are expected to close by the end of the third quarter.
In April, Chesapeake peeled off more of its Oklahoma holdings, selling 12,000 net acres in the Scoop Play to a Kayne Anderson-backed company for $106 million.
The expected net proceeds currently closed or signed in 2016 will reduce Chesapeake's production by about 35,000 boe/d, with nearly 60% natural gas.
Chesapeake reported a $964 million first-quarter loss, or $1.44 per fully diluted share. The primary driver of the loss was a noncash impairment of the carrying value of Chesapeake's oil and natural gas properties of about $853 million, the company said.
Newfield
The deal will expand Newfield's footprint in the Stack Play to about 265,000 net acres, including significant overlap in Kingfisher, Blaine, Dewey and Canadian counties, Okla. The Houston-based company's average working interest across the acreage is about 50%.
"This bolt-on acquisition is ideal for Newfield, combining strategic fit in a growing resource play where we have a clear competitive advantage," said Lee Boothby, Newfield’s chairman, in a statement.
Boothby said as the discoverer and founder of Stack, Newfield has drilled more than a quarter of the play's total wells and are the proven leader.
"Time and again, we have demonstrated our ability to efficiently move large-scale resource plays from concept to discovery, through the HBP phase and into full-field development," he added.
In its deal with Chesapeake, more than 90% of the acreage is HBP and requires only modest capital investments over the next several years, the release said.
Of the total consideration, about $50 million is associated with PDP reserves and reimbursement for recent Stack wells which are currently drilling or have been drilled and are planned for completion.
Closing is planned for the second quarter of 2016, and is subject to customary adjustments. The transaction will have an effective date of April 1.
Emily Moser can be reached at emoser@hartenergy.com.
RELATED: Chesapeake Continues Oklahoma Exodus With Scoop Deal
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