Chesapeake Energy Corp. on Monday took another step toward closing a multibillion dollar funding gap.
Chesapeake announced a $1.02 billion joint venture with Sinopec International Petroleum Exploration and Production Corp. for a stake in its acreage in northern Oklahoma's Mississippi Lime play.
Chesapeake will get the bulk of the money in cash when the deal closes.
Oppenheimer analyst Fadel Gheit said the deal is not structured like a typical joint venture, which usually includes less up-front cash and more money for future drilling costs, because of Chesapeake's budget woes.
“They need the cash today and not tomorrow,” Gheit said. “To them, obviously time is critical.”
Sinopec will buy an interest in half of Chesapeake's 850,000 net acres in the oil-rich Mississippi Lime, then share future exploration and development costs in the play.
“We are excited to announce the execution of our Mississippi Lime joint venture with Sinopec, which moves us further along in achieving our asset sales goals and secures an excellent partner to share the capital costs required to actively develop this very large, liquids-rich resource play,” said Steven C. Dixon, Chesapeake's chief operating officer.
Chesapeake's Mississippi Lime acreage produced an average of 34,000 barrels of oil equivalent a day during the fourth quarter. The acreage has proved reserves of 140 million barrels of oil equivalent.
Chesapeake's stock slipped nearly 7 percent Monday, dipping $1.39 to $19.11, a performance Gheit said may have been indicative of expectations the company would get more money for its Mississippi Lime acreage.
Sinopec is no stranger to the area, having struck a $2.5 billion deal with Devon Energy Corp. in January 2012 that included acreage in the Mississippi Lime and four other resource plays.
Gheit said such deals allow Chinese oil companies to learn techniques needed to develop that country's abundant resources.
“I call it legalized industrial espionage,” he said.
Chesapeake previously has agreed to two development deals with CNOOC International Ltd., a subsidiary of one of China's largest independent oil companies.
CNOOC paid nearly $1.8 billion for a stake in Chesapeake's operations in the Eagle Ford Shale in south Texas and the Niobrara Shale in northeast Colorado and southeast Wyoming. The Eagle Ford deal was announced in January 2011, while the Niobrara deal was announced in October 2010.
Chesapeake has been working since last year to sell assets to offset a looming budget shortfall.
The company sold more than $11 billion worth of assets to avert a cash crunch last year.
Several days before Monday's deal was announced, Chesapeake Chief Financial Officer Nick Dell'Osso said the company plans to sell $5 billion to $7 billion in assets this year.
Chesapeake also intends to sell acreage in south Texas' Eagle Ford Shale and areas outside its core holdings.