Chesapeake Power, a chief mover within the US shale power revolution, has struck a $1.4bn deal to dump the majority of its Texas oil property because it ditches crude manufacturing in favour of drilling for pure gasoline.
The corporate mentioned on Wednesday it had agreed to promote roughly 60 per cent of its land within the Eagle Ford basin of south Texas to Wildfire Power. The sale marks Chesapeake’s first concrete deal in a strategic pivot out of oil. Future manufacturing will likely be concentrated within the gas-rich shale areas of the Haynesville basin in Louisiana and the Marcellus in Appalachia.
Oklahoma-based Chesapeake helped to pioneer the horizontal drilling and hydraulic fracturing methods in shale rock that turned the US into the world’s largest producer of hydrocarbons over the previous decade. At its peak in 2008, the corporate was the nation’s second-biggest gasoline producer after ExxonMobil with a market capitalisation of $35bn. Its then-chief government Aubrey McClendon, grew to become the best-paid government within the US.
The corporate then deepened publicity to grease, culminating in a $4bn buy of WildHorse Useful resource Improvement in 2018 that gave it the property now being offered. Wildfire Power is a reincarnation of WildHorse, with a president, chief government and chief monetary officer who held senior roles on the earlier firm.
The shift in the direction of oil and a sequence of debt-fuelled land grabs pressured Chesapeake into chapter 11 when power demand and costs collapsed within the early days of the Covid-19 pandemic.
Chesapeake emerged from chapter in 2021 and has since steadily expanded its gasoline portfolio. A 12 months in the past chief government Nick Dell’Osso had mentioned the corporate was “committed” to being within the Eagle Ford basin with a view to preserve a various portfolio.
However the firm got here underneath stress from activist investor Kimmeridge Power, which holds just below 2 per cent of its shares. The group accused it of a “lack of strategic clarity” and urged it to concentrate on gasoline.
Chesapeake final August introduced a plan to exit oil and put money into gasoline. Dell’Osso mentioned on the time that the choice was pushed by higher returns on its gasoline property, the place it has had extra success driving down prices and enhancing effectivity in contrast with oil. He additionally pointed to surging US exports of liquefied pure gasoline following a world scramble for the commodity fuelled by the struggle in Ukraine.
On Wednesday, Dell’Osso mentioned the sale “marks an vital step on our path to exiting” the Eagle Ford, one of many largest shale areas within the US.
Chesapeake will promote 377,000 acres within the Eagle Ford’s Brazos Valley in its take care of Wildfire, out of the 610,000 it holds within the basin in whole. The property produce about 28,000 barrels of oil equal a day.
Dell’Osso mentioned the corporate remained “actively engaged with different events” relating to the rest of its place within the basin.
“Chesapeake is finalising its transformation again to the place it started as a pure gasoline firm and will likely be effectively positioned within the coming decade to reap the benefits of gasoline as a transition gas,” mentioned Andrew Gillick, a managing director at power consultancy Enverus.
Mark Viviano, head of public equities at Kimmeridge, advised the FT on Wednesday that Chesapeake’s sale marked “vital progress in executing their technique to concentrate on their low-cost gasoline property”.
