Chesapeake Continues to Shed Assets for Cash (CHK, GS, BP, STO)

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Chesapeake Energy Corporation (NYSE:CHK) has sold about $412 million worth of royalty interests in "long-lived, producing assets" in gas fields in Oklahoma and Arkansas. The buyer was a private equity firm, Argonaut Private Equity, and the deal was financed by an affiliate of The Goldman Sachs Group, Inc. (NYSE:GS).

The assets currently produce about 60 million cubic feet equivalent perday of natural gas, and the total resource amounts to about 98 billioncubic feet equivalent of natural gas. The sale works out to about$4.20/thousand cubic feet equivalent. That’s a solid price when USnatural gas spot prices are around $5/thousand cubic feet, as they aretoday.

Chesapeake has been doing everything it can think of to raise cash. Thecompany filed to sell more shares. There wereeven rumors of a buyout by BP plc (NYSE:BP) in November. The companyhas raised more than $4 billion in cash from sales to BP alone, andanother $3.375 billion from sales to StatoilHydro ASA (NYSE:STO). Alltold, the company has raised more than $10 billion in cash in 2008. AndChesapeake needs the money because the company does not expect cashflows to cover exploration and other capital expenditures in 2008 or2009.

Chesapeake’s reserves total about 12 trillion cubic feet equivalent ofnatural gas, so the announced sales have not dented that numbersignificantly. But the value of those reserves is dropping as pricesfor natural gas fall. The share price is up about 4.5% this morning, tojust over $18. That’s a far cry from the 52-week high of $74.00.

Paul Ausick
January 5, 2009