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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

He said Chesapeake is No. 20 among oil producers in the Permian, but it has been acquiring a lot of acreage over the past few years.

“I think they're probably in a pretty good position to maximize the value of that acreage,” Sheppard said. “Even though oil's been sliding in the past two weeks, I think everybody is still bullish on oil.”

Sheppard said Chesapeake likely will break up its acreage into pieces to sell it.

“That would mean that your larger independents are going to be the ones, not necessarily a major, a Chevron or a Conoco or anybody, but maybe an Apache, a Pioneer, Concho, Oxy (Occidental),” he said. “I think those are all likely interested parties, but I have no knowledge that any of those negotiations or conversations are occurring.”

Concho Resources announced a $1 billion Permian acquisition Sunday, so it likely isn't among the company's interested in Chesapeake's acreage.

Ready to sell

McClendon said Chesapeake's acreage could be sold in one piece or as many as three.

“We've split it up into three so that smaller bidders could take a look at it, but obviously it's easier to do one deal than three deals,” he said. “But we'll do whatever's best to maximize the value from the asset sale.”

Either way, McClendon predicts the sale will be a profitable one for Chesapeake. Officials have not discussed how much they expect to net from the sale.

“This is probably going to be the biggest Permian asset sale in quite a long time and perhaps a long time into the future,” he said. “For a company that wants to get bigger in the Permian or wants to get in the Permian, this is the best opportunity they've seen in a long time and are likely to see in a long time.”

McClendon said Chesapeake's Permian acreage should be in the hands of a producer that will devote more attention to it.

The Permian currently accounts for about 4 percent of Chesapeake's drilling activity, with only 12 rigs in the field.

“Given the size of our asset base there, you probably need about three times that,” he said. “It just needs more capital. It needs a bigger company.”

McClendon said he expects a deal to be announced in the third quarter.