July 30--Chesapeake Energy Corp. is swapping out some of its interests in Wyoming'sPowder River Basin to boost its acreage position there, while spending $1.26 billion to buy back preferred shares of subsidiary CHK Utica LLC.
The Oklahoma City-based oil and natural gas producer will pay $450 million in cash to RKI Exploration and Production LLC in the Wyoming deal.
RKI will receive about 137,000 net acres and Chesapeake's interest in 68 gross wells in the northern portion of the Powder River Basin, where RKI is the designated operator. The average working interest RKI is acquiring is 22 percent.
Chesapeake will get about 203,000 net acres and RKI's interest in 186 gross wells in the southern part of the region.
The deal, which is subject to third-party consents, is expected to close next month, boosting Chesapeake's acreage position and average working interest in the play company officials consider an important part of its future.
"We are excited to increase our position in this outstanding asset and consolidate our acreage, working interest and operatorship in the southern end of the Powder River Basin," CEO Doug Lawler said. "Excellent results to date from the Niobrara and Sussex formations, coupled with additional stacked pay potential in other Upper Cretaceous sands as well as the Frontier and Mowry formations, demonstrate the potential of the Powder River Basin to be a major oil growth engine for the company."
RKI CEO Ronnie Irani said the acreage swap is a great deal for both companies.
"This basin is rapidly becoming one of the premier emerging oil basins in North America," Irani said, noting RKI is one of its most active drillers and largest acreage holders.
RKI, a privately held company formed in 2005, is focused on the Powder River Basin and west Texas' Permian Basin. It has more than 145 employees.
Chesapeake expected to close the deal to repurchase all of its outstanding preferred shares in CHK Utica LLC on Tuesday, retiring the company's cost leverage instrument and eliminating about $75 million in annual dividend payments.
Chesapeake plans to fund the RKI and CHK Utica deals with available liquidity, including nearly $1.5 billion in unrestricted cash held on its balance sheet.
Sterne Agee analyst Tim Rezvan said the moves are good for Chesapeake.
"The $1.7 billion outlay may raise eyebrows, but we support the move to minimize opacity on the balance sheet, even if it delays a credit upgrade to investment grade," Rezvan said.
"The retirement of the CHK Utica preferreds marks the end of a financially sordid chapter of balance sheet opacity that deterred many investors."
Chesapeake's stock was up 22 cents Tuesday after the company announced its latest efforts to refine its portfolio.
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