Chesapeake Energy Corp.'s sale this week of a portion of its Mississippi Lime leasehold has drawn mixed reactions from investors and analysts.
The Oklahoma City-based energy company said its joint venture agreement with Chinese oil company Sinopec International Petroleum Exploration and Production Corp. includes a 50 percent interest in 850,000 acres of Chesapeake's leasehold in the Mississippi Lime of northern Oklahoma.
The joint venture represents less than half of Chesapeake's 2 million acres in the Mississippian play, which extends into western Kansas.
The price translates to about $2,400 an acre, far less than the $7,000 to $8,000 the company said in July it expected to receive, and less than the $4,400 an acre and $2,750 an acre SandRidge Energy Inc. received in similar transactions in 2011, before much of the infrastructure and development began.
In August, Midstates Petroleum bought 103,000 acres in the area for about $6,300 per acre.
Morningstar analyst Mark Hanson was not overly impressed with the terms of Chesapeake's announcement.
“At $2,400 per net acre, the deal with Sinopec has to be somewhat disappointing for Chesapeake,” he wrote in an analyst report Tuesday.
“The fact that SandRidge's Mississippi Lime acreage was far less developed at the time of its JVs makes Chesapeake's deal with Sinopec even more underwhelming.”
Despite the lower-than-expected price, Hanson said the sale is an important step toward Chesapeake meeting its funding goals.
“Importantly for Chesapeake, however, the fact that all proceeds will be received up front ... helps close the $4 billion funding gap the company is projecting for 2013,” Hanson said.
Argus analyst Phillip Weiss shared many of Hanson's concerns.
Instead of looking at price per acre, Weiss focused on price per produced barrel of oil equivalent. At the company's production rate at the end of 2012, the deal is worth about $44,000 per produced barrel equivalent, less than two-thirds of the median sales price in the area over the past 12 months of about $76,000 per produced barrel.
“While the announced JV (joint venture) with Sinopec is a necessary step in the company's effort to monetize $4 billion to $7 billion of assets in 2013, the price received is disappointing,” he wrote in a research report Wednesday.