Chesapeake Considering Texas Asset Sale

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Chesapeake Considering Texas Asset Sale

Chesapeake Energy plans to sell its producing oil assets in South Texas in the hopes of pocketing some $2 billion, Reuters has reported, citing two anonymous sources.

Chesapeake filed for bankruptcy in June last year and agreed to eliminate $7 billion in debt during the restructuring it entered into under Chapter 11 protection. Chesapeake had a total debt load of $9 billion at the time of its last financial report before filing, and few ways to reduce this meaningfully amid the oil and gas price depression on global markets. It had been close to bankruptcy before, during the 2016 oil price crisis, but now the demand destruction brought about by the pandemic sealed its fate, albeit temporarily.

The company emerged from bankruptcy this January after a judge approved its Chapter 11 restructuring plan. The company will be worth more than $5 billion now, thanks to the continuing rebound in oil prices. Chesapeake managed to cut those $7 billion from its debt and secured some $3 billion in financing.

Regarding this asset sale, few details have been made available, with Reuters noting that the company declined to comment on the information. What is known is that the assets span 220,000 acres in the Eagle Ford shale play and that they produce some 84,000 barrels of oil equivalent daily, of which 26 percent is natural gas.

“Given that Eagle Ford deals have mostly had private equity buyers in recent years, this could set up to be one of the bigger acquisitions by a private equity-sponsored producer,” an Enverus analyst, Andrew Dittmar, told Reuters.

It would make sense for Chesapeake to offload oil-producing assets, the report notes, as it is re-focusing on its core business in natural gas production. Last year, the company earmarked just 8 percent of its annual budget for operations in South Texas, while 85 percent were allocated for its gas operations in the Appalachian Basin and the Gulf Coast.

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