Chesapeake Energy has entered into an agreement to sell its interests in the Utica Shale operating area located in Ohio for approximately $2 billion to Encino Acquisition Partners, a private oil and gas company headquartered in Houston. The transaction, which is subject to certain customary closing conditions, including the receipt of third-party consents, is expected to close in Q4 2018. The purchase price includes a $100 million contingent payment based on future natural gas prices and is subject to adjustment for certain customary items at or following closing. Chesapeake intends to use the anticipated net proceeds to reduce debt.
Transaction highlights are:
- $1.9 billion initial closing proceeds to be applied toward reduction of debt; up to $150 million reduction in annual cash interest expense;
- $450 million reduction of projected 2019 gathering, processing and transportation expense, for an expected improvement of approximately $0.50 per BOE; eliminates all future Utica Shale midstream and downstream commitments of approximately $2.4 billion;
- Improves EBITDA by approximately $0.70 per BOE in 2019, due to lower cash operating costs and improved oil differentials, assuming flat 2018 commodity prices;
- Expect organic replacement of divested EBITDA within one year, primarily driven by oil volume growth from the Powder River Basin (PRB);
- 2019 oil production expected to grow approximately 10% from 2018, adjusted for asset sales, with additional oil growth anticipated for 2020; and
- 2018 Outlook updated to reflect business performance year to date and impact of pending transaction.
“Today’s announcement makes Chesapeake a stronger and more competitive company,” Doug Lawler, Chesapeake’s President and Chief Executive Officer, commented. “By divesting our position in the Utica and using the proceeds for debt reduction, we will not only significantly improve the health of our balance sheet, but we will also accelerate progress toward our strategic goals of reducing our debt, improving our margins and reaching sustainable free cash flow neutrality.”