Oil and natural gas producer Chesapeake Energy Corp. (CHK) agreed Wednesday to sell its producing and undeveloped oil and gas assets in the Eagle Ford and Haynesville shale formations to peer EXCO Resources, Inc. (XCO) for total proceeds of about $1 billion. The deal, subject to certain closing conditions, is expected to close later in the month.
The effective dates of the Eagle Ford and Haynesville acquisitions are April 1, 2013 and January 1, 2013, respectively.
Oklahoma City-based Chesapeake, second-largest U.S. natural gas producer, noted that about 90 percent of the total proceeds will be received upon closing, while the balance 10 percent will be subject to certain customary post-closing contingencies.
"These acquisitions are consistent with our strategy of targeting opportunities in both existing core areas and new plays," EXCO's Chairman and CEO Douglas Miller said.
The sale includes about 55,000 net acres in Zavala, Dimmit, La Salle and Frio counties of Texas in the Northern Eagle Ford Shale for a consideration of about $680 million. These include about 120 producing wells with average net daily production of about 6,100 barrels of oil equivalent during the month of May.
Additionally, the sale includes about 9,600 net acres in Desoto and Caddo parishes of Louisiana in the Haynesville Shale for a consideration of about $320 million, with average net daily production of about 114 million cubic feet of natural gas equivalent during the month of May.
EXCO expects to finance the Haynesville acquisition under its existing credit agreement, while it has secured a financing commitment from J.P. Morgan & Chase Co. (JPM) for funding the Eagle Ford acquisition.
Meanwhile, EXCO has entered in to a partnership with entities advised by or affiliated with Kohlberg Kravis Roberts & Co. L.P. (KKR), including KKR Financial Holdings LLC (KFN), for drilling and developing the undeveloped locations in the Eagle Ford. KKR has agreed to invest about $133 million and become the drilling capital partner in the Eagle Ford acreage.
Chesapeake noted that the impact of these asset sales on net production and capital expenditures was previously reflected in its guidance provided on May 1, 2013.
"Today's announcement brings our year-to-date asset sales signed or closed to approximately $3.6 billion, which, combined with forecasted net operating cash flow, enables Chesapeake to fully fund its 2013 capital expenditure budget. Additional asset sales contemplated for later this year may reduce long-term debt and further enhance our financial liquidity," Chesapeake CEO Doug Lawler stated.
CHK closed Tuesday's regular trading session at $20.92, up $0.15 on a volume of 6.54 million shares. In the past 52-week period, the stock has been trading in a range of $16.23 to $22.97.
XCO closed at $7.44, unchanged on a volume of 2.12 million shares. In the past 52-week period, the stock has been trading in a range of $5.97 to $9.08.
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