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With natural gas prices at a ten year low many nat gas producers are struggling to make any profits. Chesapeake Energy Corp. has found itself with mounting debts and has therefore sold off $2.6 billion worth of assets in attempt to raise cash.
Chesapeake was the second largest producer of natural gas in America, but moved away from extracting more gas as the prices fell; instead it is now concentrating on reducing its $10.6 billion of long-term debt.
Chesapeake has been following a strategy to raise its production levels of natural gas liquids, which have become more profitable due to their demand in the production of plastics. However despite this it recently sold its interest in the liquids-rich Cleveland and Tonkawa plays in Oklahoma to a group of investors led by an affiliate of the Blackstone Group for $1.3 billion.
They have also agreed the upfront sale of natural gas produce over the next 10 years to an affiliate of Moran Stanley, worth $745 million. The price is based upon a rate of $4.68 per thousand cubic feet, more than double the current market rate, but the buyer obviously believes that natural gas prices will climb drastically in the next 10 years.
A massive 58,400 acres of leases in the Texoma Woodford play in Oklahoma has also been sold to XTO Energy, a part of Exxon Mobil, for $590 million. Aubrey McCLendon, CEO of Chesapeake, justified the sale by stating that, “the Texoma Woodford play is non-strategic to Chesapeake, and we are happy to unlock the value in these assets for our shareholders.”
If Chesapeake can continue to raise similar levels of capital with the sales of non-vital assets, it will easily be able to keep its long-term debts under control.
By. James Burgess of Oilprice.com
James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…