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.
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.