Chesapeake to sell stake in Okla. to Chinese company

Associated Press

OKLAHOMA CITY

Chesapeake Energy said Monday that it will sell a 50 percent stake in oil- and natural-gas-rich land in Oklahoma to Chinese oil company Sinopec for $1.02 billion as the natural- gas producer continues selling off assets to repay debt.

Chesapeake is the second-largest producer of natural gas in the U.S. after Exxon Mobil. Hurt by low natural-gas prices, it has sold off billions in assets to pay off debt incurred as it rushed to buy land and other assets. It’s also increasingly focused on more-lucrative oil and gas liquids.

At the end of 2011, the company completed a joint venture and sold 25 percent of its assets in the wet-gas portion of the Utica Shale formation, which mostly is concentrated underneath the tip of western Pennsylvania through eastern Ohio and down into the southeastern portion of the state, for $2.03 billion in cash and future drilling options.

Across the Utica, Chesapeake still has about 1 million acres under lease, primarily in Ohio. The company tripled its rig count in the Utica during 2011 and began to ramp up liquids production in the play.

The company posted a $940 million loss last year because of a big charge to write down the value of its natural-gas-producing property.

The deal with Sinopec “moves us further along in achieving our asset sales goals and secures an excellent partner to share the capital costs required to actively develop this very large, liquids-rich resource play,” said Steven Dixon, Chesapeake’s chief operating officer.

The company is aiming for $4 billion to $7 billion in asset sales this year.

For Sinopec, the biggest refiner in Asia, investing with Chesapeake gives it a bigger foothold in North America. It and other state-owned companies have been expanding in recent years with acquisitions outside of Asia as they seek access to resources needed to fuel their economies.

Canadian and U.S. authorities recently approved the acquisition of Canada’s Nexen Inc. by China’s CNOOC for $15.1 billion. China’s state-owned PetroChina announced in December that it was paying $2.21 billion for a 49.9 percent stake in acreage in Alberta controlled by Canada’s Encana Corp.

The recent successes by Chinese companies in North America are a turnaround from 2005, when U.S. authorities stymied CNOOC’s proposal to buy American oil producer Unocal. Chevron later bought it for $17.3 billion. Canadian authorities have said they would be unlikely to approve more outright purchases, while welcoming joint ventures.

The joint venture between Sinopec and Chesapeake involves 850,000 acres in the Mississippi Lime play in northern Oklahoma. It produced about 34,000 barrels of oil equivalent per day during the most recent quarter, Chesapeake said. As of the end of the year, there were about 140 million barrels of oil equivalent in proven reserves on the land.

Chesapeake said it will get 93 percent of the money when the deal closes, which is expected in the second quarter. It will be paid the rest of the money after other conditions are met.

Future exploration and development cost will be shared between the two companies, with Chesapeake operating the project and conducting all leasing, drilling, completion, operations and marketing work.

Vindicator reporter Jamison Cocklin contributed to this story.