Chesapeake Energy (CHK) announced two joint venture transactions involving the company’s properties in Ohio that are prospective for the Utica Shale. The company expects to receive $3.4 billion in proceeds from the deals.
Transaction One
Chesapeake Energy reported selling a 25% interest in 650,000 net acres of leasehold in the wet gas area of the Utica Shale. The company owns 570,000 net acres and EnerVest owns the other 80,000 net acres.
Chesapeake Energy will receive $2.14 billion, with $640 million in cash and $1.5 billion as a drilling carry. The company expects to utilize this drilling carry by the end of 2014. EnerVest will receive $300 million from the deal.
This joint venture deal is with an unidentified international major oil company and values the acreage at $15,000 per acre. Chesapeake Energy will be the operator of the joint venture.
Transaction Two
Chesapeake Energy has created a new entity called CHK Utica, L.L.C and issued $500 million of perpetual preferred stock in this entity to EIG Global Energy Partners. Chesapeake Energy is planning to sell an additional $750 million of these shares to other investors.
CHK Utica, L.L.C is a subsidiary of the company and owns 700,000 net acres of Utica Shale leasehold in Eastern Ohio. The perpetual preferred stock comes with a 7% distribution, paid out every quarter. Other details on the preferred stock:
- Issuer retains an option to repurchase the shares prior to 10/31/2018 at a valuation equal to the greatest of a 10% IRR or a 1.4 return on investment.
- Holders of the shares also receive a 3% overriding royalty interest in the first 1,500 net Utica Shale wells drilled by CHK Utica, L.L.C.
