Posted 2/14/2011 07:39 am
Updated 1 year ago
Chesapeake Energy Corp.'s decision to sell $5 billion worth of Fayetteville Shale assets may has as much to do with its balance sheet as it does with the long-term viability of the north-central Arkansas natural gas reserves, according to an industry analyst.
"This is something that happens in the business over and over again," Chris McGill, managing director of policy analysis for the American Gas Association, said of last week's announcement. "It's called flipping a piece of your position. In most cases, it's simply there to get something back."
As of Sept. 30, the publicly traded corporation headquartered at Oklahoma City reported nearly $15 billion in long-term debt - so much that its public filings included a plan to pay off 25 percent of that debt by 2012. Proceeds from the recently announced sale should help retire between $2 billion and $3 billion of shorter-date senior notes as well as reduce bank debt.
Exploring for gas in shale plays like the Fayetteville is an expensive proposition, with most of the cost on the front end.
"They could be paying a thousand dollars per acre or more in one of these play areas," McGill said. "A million acres, which certainly a company the size of Chesapeake could have, at a thousand an acre - that's a billion dollars right out of the chute, and you haven't produced anything yet."
AP Analysis: Inside the Sheffield Nelson playbook.
Sheffield Nelson, again, wants to raise the severance tax to 7 percent.