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Chesapeake expects $13-14 billion in asset sales for 2012

Chesapeake Energy Corp. expects $7 billion in asset sales during the third quarter, which would bring the company’s 2012 total asset sales to about $11.7 billion, executives said during an Aug. 7 earnings conference call.

For the full year, Chesapeake executives updated their asset sales expectations to $13-14 billion compared with an earlier forecast of $11.5-14 billion. Assuming completion of its planned asset sales yet this year, Chesapeake of Oklahoma City plans to repay its $4 billion in term loans.

Chesapeake has $14.3 billion in long-term debt, and it reaffirmed its commitment to cut that to $9.5 billion by yearend.

The independent, which has faced financial, governance, and legal questions, expects to close three transactions in the Permian basin during the third quarter, including its Midland basin producing assets to affiliates of privately held EnerVest Ltd.

Chesapeake accepted bids on two other packages in the Delaware basin portion of the Permian basin. Executives said they expect to close other asset sales during the third quarter and are identifying assets to sell during the fourth quarter.

Aubrey McClendon, Chesapeake's chief executive officer, said, "We continue our ongoing transformation to a more balanced asset base between higher-margin liquids and lower-margin natural gas.”

During June, former ConocoPhillips Director Archie Dunham was named Chesapeake chairman, and the board was restructured. Billionaire Carl Icahn and Southeastern Asset Management control four seats on Chesapeake's nine-member board (OGJ Online, June 21, 2012).

Reserves

Chesapeake cut proved, undeveloped reserves in the Haynesville and Barnett shale formations, saying those reserves are unprofitable to produce given current gas prices. Chesapeake's reserves as of June 30 were 17.4 tcf of natural gas equivalent, down 7% from a year ago.

“These reserves may come back on the books,” possibly in 2014, said McClendon, who believes gas prices hit their low in a 4-year down cycle during April. “We expect gas markets to look very different in a few years than during the last 6 months.”

The company plans to have 8 rigs running in dry gas plays by yearend compared with its peak rig count of 104 units running in dry gas plays in March 2010.

Chesapeake’s second-quarter production averaged 3.8 bcfd, a 25% increase from the same period a year ago and a 4% increase from the 2012 first quarter.

The latest second-quarter average production involved 3.027 bcfd of gas and 130,200 b/d of liquids. Of the liquids, 80,500 b/d was oil and 49,700 b/d was natural gas liquids.


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