2010-10-05-2010-10-04-2010-10-04

Transaction Type
Sellers
Buyers
Announce Date
Post Date
Close Date
Estimated Price
$1,150.0MM
Description

Acquired producing N TX Barnett shale assets in VPP deal, gaining 280 MMcf/d, 390 Bcf proved.

Barclays Bank Plc, London, (London: BARC) has acquired producing Barnett shale assets in North Texas from Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) for $1.15 billion in a five-year volumetric production payment (VPP).

The assets include expected production of 280 million cubic feet of gas per day of net production in 2011. Proved reserves are 390 billion cubic feet of gas.

This is Chesapeake's eighth VPP deal since December 2007, in which it has monetized approximately 1 trillion cubic feet of gas equivalent of proved reserves for combined proceeds of approximately $4.7 billion, or approximately $4.70 per thousand cubic feet equivalent.

Jefferies & Co. Inc. was financial advisor to Chesapeake.

Wells Fargo senior analyst David Tameron reports Chesapeake had previously indicated its intention for this transaction and that the company is selling production at approximately $4,107 per thousand cubic feet equivalent per day and proved reserves at $2.95 per thousand cubit feet equivalent.

Tameron says, "This compares to current Chesapeake trading ranges of $2.08 expected value per thousand cubic feet equivalent and $8,900 per thousand cubic feet equivalent per day. The transaction is accounted for as a reduction in proved reserves and a reduction in the oil and gas properties account on the balance sheet."

Chesapeake announced plans in May for a $5-billion financial restructuring to achieve investment-grade debt ratings and increase exposure to liquids assets. Tameron says VPP sales are one component of this restructuring, which potentially also include a Marcellus sale ($2- to $3 billion), Eagle Ford joint venture ($1- to $1.5 billion) and midstream monetization.

Raymond James & Associates analyst Darren Horowitz, says, "Looking at the metrics, Chesapeake sold the VPP for approximately $2.95/Mcfe of proved reserves, which is the lowest among its eight total VPPs, but in-line with recent transactions in the Barnett shale."

He adds that Chesapeake's joint venture with Total SA in the Barnett at the beginning of 2010 was done at a price of $3 per thousand cubic feet equivalent of proved reserves.