Haynesville transaction takes tally to $2 billion in gross divestitures in 2016 for Chesapeake Energy
Oklahoma City-based Chesapeake Energy Corp. (ticker CHK) announced that the company signed an agreement to sell a portion of its Haynesville shale acreage and producing assets in northern Louisiana to a private company for approximately $450 million. Included in the sale are approximately 78,000 net acres, 40,000 of which Chesapeake said in its press release it considered core acreage.
The sale includes 250 wells currently producing approximately 30 MMcf/d of natural gas, net to Chesapeake. Assuming a $3,000/Mcf production rate multiple, the transaction equates to about $4,000 per acre net of production.
Another 50,000 acres for sale
Chesapeake Energy said that this is just the first of two Haynesville divestitures the company plans to close by the first quarter of 2017, with the second set of assets being made up of approximately 50,000 net acres in the northeastern part of the Haynesville. Following both divestitures, Chesapeake will hold approximately 250,000 net acres in the core of the Haynesville.
“At strip pricing, given net asset sales, debt financing and equity exchanges to date, along with ~$3.15 billion of available revolver capacity, Chesapeake has sufficient liquidity to fund the ~$1.22 billion of debt maturities through YE’18 and execute its capital plan,” a note from KLR Group said Monday.
The company’s 2017 development program in the Haynesville will be focused on longer laterals and further enhanced completions, resulting in projected adjusted production growth of approximately 13% from its Haynesville operations in 2017.
Chesapeake hitting a turning point
While the company will still have a long way to go in order to reach its long-term net-debt-to-EBITDA goal of 2.0x, Monday’s sale and the expected second sale should put the company on the right course. Gross proceeds from divestitures have reached approximately $2 billion in 2016, according to the company’s CEO, Doug Lawler.
“With our long-term target of $2 billion to $3 billion in debt reduction, we will continue to look for opportunities to accelerate value through the sale of additional non-core assets in 2017 and beyond,” said Lawler. “Through the continual optimization of our asset base, reduction in our net leverage, improvement in liquidity and cash flow generating capabilities, we believe Chesapeake is well positioned for the years ahead.”
Wells Fargo expects the company’s outspend for 2017 will still be in excess of $600 million, but with gas prices above $3.00 per MMBtu, and the $2 billion in divestitures in 2016, the company could still reach its long-term goals.
“Though 2017 outspend is still likely to be significant, net leverage grinds down to about 4.5x by year-end in our model ($3.20 / Mcf gas deck) pro forma for this transaction,” said Wells Fargo. “If gas prices hold in at $3+ we see 2017 as somewhat of an inflection point as CHK gradually turns the corner executing on its plan to unwind the balance sheet, bring costs down, and pivot to a more balanced commodity mix across its portfolio.”
Chesapeake has operations in the Utica, Marcellus, Mid Continent-Oklahoma, Haynesville, southern Powder River and Eagle Ford plays.
Analyst Commentary
Wells Fargo
While still more wood to chop in getting the balance sheet to its stated longer-term target net leverage level of 2x, CHK has tallied about $2B of gross proceeds through assets sales in 2016, which represents significant progress. And though 2017 outspend is still likely to be significant ($650MM in our model) net leverage grinds down to about 4.5x by year-end in our model ($3.20 / Mcf gas deck) pro forma for this transaction. If gas prices hold in at $3+ we see 2017 as somewhat of an inflection point as CHK gradually turns the corner executing on its plan to unwind the balance sheet, bring costs down, and pivot to a more balanced commodity mix across its portfolio.
Capital One Southcoast
Price tag represents ~3% of CHK’s enterprise value and the divested vols represent ~1% of CHK's production. Adjusted price is ~$4K/acre, excluding ~$120MM of production value assuming $4K per Mcf/d. We estimate the asset generates ~$17MM of annual EBITDA at our '17 price deck of $3/Mcf. Deal metrics thus include ~$15K per flowing Mcfe/d and ~27x EBITDA vs CHK’s standalone multiples of ~$4K per Mcfe/d and 8.9x EBITDA based on '17.
KLR Group
Chesapeake announced it has entered into an agreement to sell ~78k net acres (~40k core net acres) in the Haynesville for ~$450 million, above our ~$300 million expectation. The properties include ~250 wells producing ~30 Mmcfpd. Assuming a $3K/Mcf production rate multiple, the transaction equates to a ~$4K per acre valuation net of production. The sale should close in the first quarter. Pro forma the transaction, YE’17 net debt-to-EBITDA should decrease from ~4.9x to ~4.8x. Chesapeake continues to market ~50k net acres (~45 Mmcfpd of production) in the northeastern portion of its Haynesville position. At strip pricing, given net asset sales, debt financing and equity exchanges to date, along with ~$3.15 billion of available revolver capacity, Chesapeake has sufficient liquidity to fund the ~$1.22 billion of debt maturities through YE’18 and execute its capital plan. The Haynesville divestiture should have minor positive value impact.
