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Chesapeake Energy Shifts To More Oil In 2010
Chesapeake Energy (NYSE:CHK) started the transition in 2010 from a natural gas-oriented exploration and production company to one with a more balanced production profile comprising oil and natural gas liquids.
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Strategic And Financial Plan
In May 2010, Chesapeake Energy officially joined the parade of exploration and production companies moving into oil and natural gas liquids plays in the United States. The company announced a strategic and financial plan to raise $5 billion through capital market activity and asset sales. The funds would be used to pay down debt and to explore and develop 12 oil and liquids plays where Chesapeake has been building acreage over the last few years.
Chesapeake's goal is to grow its liquids production by 60% in 2010, 80% in 2011 and 60% in 2012, with the aim of having 30% of total production from oil and liquids by 2015.
Despite this major effort to grow its oil and natural gas liquids production, Chesapeake remains primarily a natural gas company, with 90% of its production composed of natural gas in the quarter ending September 30.
Joint Ventures
In 2010, Chesapeake continued its efforts to sign up joint venture partners to help share the expense of developing properties in shale basins. The company started 2010 by announcing a joint venture in the Barnett Shale with Total (NYSE:TOT), a French oil company. Chesapeake acquired a 25% interest for $800 million in cash and a $1.45 billion drilling carry to fund 60% of future drilling and completion expenses.
Chesapeake also signed a deal with CNOOC (NYSE:CEO) for a joint venture in the Eagle Ford Shale in November. CNOOC acquired a 33% interest here in exchange for $1.12 billion in cash, and an additional $1.08 billion drilling carry to fund 75% of future development expenses.
Production Growth
Chesapeake estimates that its production in 2010 will grow by 13% over 2009, and the company is tracking to hit this goal through the first nine months of the year.
Initial Public Offering
In 2010, Chesapeake Energy filed to do an initial public offering of Chesapeake Midstream Partners (NYSE:CHKM), a midstream company that was 50% owned by the company. Chesapeake Energy offered 21.25 million units at $21 per unit in July. The stock has done well for investors and is up over 20% to date.
Bottom Line
Chesapeake Energy announced a strategic shift to edge away from natural gas and plans to aggressively develop its oil and natural gas liquids assets over the next five years. The company has been building acreage in these types of plays for several years. (To learn more, see our Oil & Gas Industry Primer.)
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IN PICTURES: 6 Simple Steps To $1 Million
Strategic And Financial Plan
In May 2010, Chesapeake Energy officially joined the parade of exploration and production companies moving into oil and natural gas liquids plays in the United States. The company announced a strategic and financial plan to raise $5 billion through capital market activity and asset sales. The funds would be used to pay down debt and to explore and develop 12 oil and liquids plays where Chesapeake has been building acreage over the last few years.
Chesapeake's goal is to grow its liquids production by 60% in 2010, 80% in 2011 and 60% in 2012, with the aim of having 30% of total production from oil and liquids by 2015.
Despite this major effort to grow its oil and natural gas liquids production, Chesapeake remains primarily a natural gas company, with 90% of its production composed of natural gas in the quarter ending September 30.
Joint Ventures
In 2010, Chesapeake continued its efforts to sign up joint venture partners to help share the expense of developing properties in shale basins. The company started 2010 by announcing a joint venture in the Barnett Shale with Total (NYSE:TOT), a French oil company. Chesapeake acquired a 25% interest for $800 million in cash and a $1.45 billion drilling carry to fund 60% of future drilling and completion expenses.
Production Growth
Chesapeake estimates that its production in 2010 will grow by 13% over 2009, and the company is tracking to hit this goal through the first nine months of the year.
Initial Public Offering
In 2010, Chesapeake Energy filed to do an initial public offering of Chesapeake Midstream Partners (NYSE:CHKM), a midstream company that was 50% owned by the company. Chesapeake Energy offered 21.25 million units at $21 per unit in July. The stock has done well for investors and is up over 20% to date.
Bottom Line
Chesapeake Energy announced a strategic shift to edge away from natural gas and plans to aggressively develop its oil and natural gas liquids assets over the next five years. The company has been building acreage in these types of plays for several years. (To learn more, see our Oil & Gas Industry Primer.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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