Chesapeake Energy, a prime mover in the US shale energy revolution, has struck a $1.4bn deal to divest most of its Texas oil assets as it spends crude oil production to drill for natural gas.
The company said Wednesday it has agreed to sell about 60 percent of its land in the Eagle Ford basin in south Texas to Wildfire Energy. The sale marks Chesapeake’s first concrete agreement in its strategic pivot from oil. Future production will be concentrated in the gas-rich shale regions of the Haynesville basin in Louisiana and the Marcellus in Appalachia.
Oklahoma-based Chesapeake helped pioneer the horizontal drilling and hydraulic fracturing techniques in shale rock that have made the U.S. the world’s largest producer of hydrocarbons over the past decade. At its peak in 2008, the company was the country’s second largest gas producer after ExxonMobil with a market capitalization of $35bn. Chief executive Aubrey McClendon, the highest paid executive in the US.
The company then delved deeper into oil, culminating in a $4bn purchase from WildHorse Resource Development in 2018 that gave it the assets it is currently selling. Wildfire Energy is the reincarnation of WildHorse, with the president, chief executive officer and chief financial officer holding senior roles at the previous company.
The shift to oil and multiple debt-laden land grabs forced Chesapeake into bankruptcy when energy demand and prices collapsed at the start of the Covid-19 pandemic.
Chesapeake exits bankruptcy in 2021 and begins to gradually expand its gas portfolio. A year ago chief executive Nick Dell’Osso said the company was “committed” to the Eagle Ford basin to maintain a diversified portfolio.
But the company is under pressure from activist investor Kimmeridge Energy, which holds just a 2 percent stake. The group accused a “lack of strategic clarity” and called for a focus on gas.
Chesapeake last August announced plans to exit oil and invest in gas. Dell’Osso said at the time that the decision was driven by a better return on its gas assets, where it has been more successful in driving costs and increasing efficiency compared to oil. He also pointed to surging exports of US liquefied natural gas after the global scramble for fuel commodities by the war in Ukraine.
On Wednesday, Dell’Osso said the sale “marks an important step on the road to exit” the Eagle Ford, one of the largest shale regions in the US.
Chesapeake will sell 377,000 acres in the Eagle Ford’s Brazos Valley in the deal with Wildfire, out of a total of 610,000 in the basin. The asset produces about 28,000 barrels of oil equivalent per day.
Dell’Osso said the company remains “actively engaged with other parties” regarding the remainder of a position in the basin.
“Chesapeake is finalizing its transformation back to where it started as a natural gas company and will be well positioned in the coming decade to take advantage of gas as a transition fuel,” said Andrew Gillick, managing director at energy consultancy Enverus.
Mark Viviano, head of public equity at Kimmeridge, told the FT on Wednesday that the Chesapeake sale marked “important progress in executing our strategy to focus on low-cost gas assets”.