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Suitors line up for Chesapeake's Permian assets

Chesapeake Energy Corp. has encountered plenty of interest in buying its 1.5 million acres in west Texas' Permian Basin.
BY JAY F. MARKS Published: May 15, 2012

Chesapeake Energy Corp. will not have any trouble selling its holdings in west Texas' Permian Basin, CEO Aubrey McClendon said Monday.

He said the company has been beset with would-be buyers for its 1.5 million net acres in one of the nation's leading oil plays.

“We've had to basically limit the number of people who can come through our Permian data room to a double-digit number,” McClendon said. “We've got the thundering herd coming through.”

McClendon and Chief Financial Officer Nick Dell'Osso talked about Chesapeake's financial situation in a conference call Monday morning before the market opened.

McClendon said investors misinterpreted the company's first-quarter report to the U.S. Securities and Exchange Commission, as some people concluded Chesapeake would not be able to complete its Permian sale and a joint venture in the Mississippian Lime play.

He said the report instead referenced Chesapeake's decision not to proceed with a volumetric production payment transaction in south Texas' Eagle Ford shale.

Chesapeake's stock plummeted to a three-year low after the late afternoon filing Friday, causing the company to lose $1 billion in value in about 45 minutes. It rebounded slightly after the market closed when Chesapeake announced it had received an unsecured $3 billion loan from Goldman Sachs and affiliates of Jefferies Group.

“We now have substantially enhanced our liquidity and that will ensure that we can conduct our asset monetization transactions from a position of strength,” McClendon said.

Chesapeake is looking to sell some of its assets to close a funding gap between its income and anticipated expenses.

Chesapeake already has netted about $2.6 billion this year from several transactions, but McClendon said the company still needs to raise as much as $9 billion in 2012.

The company now intends to focus on “asset harvest,” rather than asset acquisition. Chesapeake will build production from its acreage in 10 oil and natural gas plays where it holds a leading position.

McClendon said Chesapeake officials chose to sell the company's Permian assets because that basin “is the hottest in the world.”

Ben Sheppard, president of the Permian Basin Petroleum Association, said the basin is historically the largest oil producer in the United States.

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