Thursday, May 9, 2013

Chesapeake Trimming to Core in Marcellus

Recent news stories have seen deals where Chesapeake Energy has sold batches of properties to competing E&P companies in the Marcellus and Utica Shales, first 162,000 net acres to Southwestern Energy and more recently 99,000 acres to EQT Resources.  Under new leadership since the departure of former CEO Aubrey McClendon, the company is looking to trim its unwieldy lease holdings to be able to focus on core operations.

The natural question for me is what's for sale in the Haynesville Shale?

The Southwestern deal was for acreage in four northern Pennsylvania counties, Tioga, Wyoming, Susquehanna and Sullivan.  As the map below shows, most of the acreage (shown in red) was not near the core of the play and was a bit scattered.  None of the core acreage in Bradford and Lycoming Counties was sold in this deal.

The EQT deal was for acreage in southwestern Pennsylvania and eastern Ohio, with 67,000 acres in the Marcellus and 32,000 acres in the Utica.  Some of the land was in scattered leases and other leases are near expiration.  About a quarter of the acreage is in the core of that producing region.  Southern Pennsylvania was never a big target for Chesapeake, so exiting that area is no big surprise.  The carpet bombing leasing activity in the Utica certainly yielded some property that the company couldn't prudently develop.  In all, it looks like an exercise in trimming the fat.

With Chesapeake on a quest for a leaner, liquids-focused operation, it seems likely the company will shed some non-core acreage in the Haynesville Shale.  Back in February 2013, the company went to market with 21,400 net acres in the Shelby Trough area of Texas.  With Chesapeake's "shotgun" approach to land acquisition, especially back in the 2008, 2009 time frame, there has to be a big collection of, shall we say, less choice acreage the company is willing to divest.  The map below is a little long in the tooth (Feb. 2010), but I think it's safe to say that CHK didn't do any new Haynesville leasing since then.  What is less certain is how many of these leases have been lost through expiration or sale.

While the company's designated core is not on the map, it does show that Chesapeake has holdings scattered throughout the play.  Some of the leases farther from the core may have expired, but since CHK nearly bankrupted itself to hold Haynesville acreage, it is a fair bet the company is still holds much of the above acreage.  It is likely that not much of the Harrison Co. acreage would be attractive at current gas prices.  I was a bit surprised to see the company selling in the Shelby Trough since much of that area is prospective for the Mid-Bossier Shale, and a stacked play seems worth keeping.  CHK hasn't been too active in Red River Parish, but there is a lot of yellow in the area.

I don't have any particular intel on Chesapeake's plans, but I have to believe there will be a few one-off asset sales in the coming year.  Your trusted observer will be keeping his ear to the ground and would certainly appreciate hearing any tips.

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