Thursday, October 16, 2014HOUSTON -- Southwestern Energy Co. today announced that it has agreed to pay Chesapeake Energy Corp. $5.375 billion to acquire 413,000 net acres in West Virginia and southwest Pennsylvania. The acquisition covers oil and gas assets in the Upper Devonian, Marcellus and Utica shales. It includes 256 operated and producing Marcellus and Utica horizontal wells and an additional 179 non-operated or non-producing wells.
The acquisition brings Southwestern Energy's Co.'s total horizontal well count to 435 wells with net production in September of approximately "336 million cubic feet of gas equivalent per day (55% gas, 36% NGL and 9% oil)," the company said.
Average net daily production from these properties was approximately 56,000 barrels of oil equivalent (boe) during the month of September, consisting of 184,000 Mcf of gas, 20,000 barrels of natural gas liquids and 5,000 barrels of condensate. As of Dec. 31, net proved reserves associated with these properties were approximately 221 million barrels of oil equivalent (mmboe).
“We are very excited to announce this transaction,” said Steve Mueller, Southwestern president and CEO, in a prepared statement. “Southwestern already has leading positions in two world class projects in our Fayetteville shale and northeastern Pennsylvania Marcellus assets and both will continue delivering highly economic production and reserve growth for many years. With this acquisition, we will have secured a complementary third premier acreage position. The early drilling in both the liquids-rich Marcellus and emerging Utica plays has confirmed the resource potential and the economic strength of a long-term development program."
The largely contiguous acreage position lies almost exclusively in northern West Virginia. Most of the acreage is either held by production or has lease commitments through 2018 that average less than 20,000 acres per year. Average net revenue on the leases is approximately 86%, the company said.
As part of the transaction, Southwestern will assume a portion of Chesapeake’s firm transportation and processing capacity commitments. Based on that capacity and expected future commitments, Southwestern’s preliminary plans are to begin with four to six rigs in 2015 and increase to 11 rigs by 2017. The company estimates it can drill for a minimum of 20 years maintaining that 11-rig pace.
Said Doug Lawler, Chesapeake’s CEO, “Today’s announcement marks a major step in Chesapeake’s transformation and a dramatic improvement in our financial strength as we seek to maximize value for our shareholders. Earlier this year, we committed to unlocking the significant value inherent in this asset, recognizing the disconnect of its perceived value within our portfolio. It’s important to note that this transaction has no impact on our expected growth profile or on our views around maintaining a disciplined capital program. We expect our full-year production guidance for 2015 to remain in the range of 7%- to 10% growth from 2014 levels adjusted for asset sales. I am very proud of the efforts that our Southern Marcellus team and all of our employees have put into building and developing our assets and creating value for our company. We look forward to deploying the proceeds from this significant transaction in ways that will continue to drive even greater shareholder value.”
Southwestern received financial advisory services and a commitment from Bank of America for a $5 billion 364-day senior unsecured bridge term loan credit facility that, together with the company’s existing revolving credit facility, will be available to fund the transaction. The company plans to access the debt and equity capital markets in advance of or following closing, depending on market conditions, to raise the permanent financing for the transactions. The company said it's also considering dispositions of certain non-strategic assets.
SOURCES: Southwestern Energy Co., Chesapeake Energy Corp.
Published by The Business Journal, Youngstown, Ohio.
CLICK HERE to subscribe to our free daily email headlines and to our twice-monthly print edition.