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Chesapeake Energy has decided to exit the Barnett shale, agreeing to transfer its assets there to a First Reserve Corp unit based in Dallas. The deal, according to Bloomberg, has been prompted by long-term pipeline contracts that have saddled Chesapeake with US$2 billion in pipeline contracts.
The transfer of property will have an immediate impact on the gas company’s costs, cutting them by US$715 million by the end of 2017 alone. However, Chesapeake will not receive any money from Saddle Barnett Resources for its gas assets, which span 215,000 acres and whose value has been estimated at around US$1 billion.
What’s more, it will pay pipeline operator Williams Brother US$334 million to be freed from a supply contract and another US$66 million to be released from another contract. In addition, Saddle Barnett will pay the pipeline company US$420 million.
According to Chesapeake’s chief executive, “We are essentially divesting an asset that is a very significant cash-flow drain on the company every single year. This is just another step in strengthening Chesapeake.”
Doug Lawler explained that Chesapeake had not drilled at its Barnett shale property for years now, and with the transfer, another company will get the chance to continue developing the deposit. There are currently 2,800 operating wells in the plot.
Barnet Resources’ parent, First Reserve Corp. is a private equity firm focused exclusively on energy assets.
Chesapeake has been struggling for survival like most of its peers in the recent price downturn in commodity markets. Asset sales and job cuts have been accompanied by equity-to-debt swaps in a bid to prevent the company from going under.
Not too long ago, Chesapeake was the biggest player in the shale patch thanks to its Barnett operations, but now both Chesapeake and the cradle of the shale revolution that helped the U.S. get so much closer to energy independence are in decline. While the Barnett Shale gave way to Marcellus and Utica, Chesapeake became one of the many victims of the price crash.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.