Southwestern Energy Co said it would buy some oil and gas assets in the Marcellus and Utica shale fields in West Virginia and Pennsylvania from Chesapeake Energy Corp for about $5.37 billion. But investors dumped Southwestern stock, sending it down 12 percent to a more than two-year low of $31.34, indicating that the company had overpaid for the assets. Chesapeake shares gained as much as 18 percent on the other hand. SunTrust Robinson Humphrey analyst Ryan Oatman said that according to his calculations Southwestern would pay $9,625 per acre for the assets.
The deal is positive for Chesapeake and other Utica and Marcellus shale players as it marks the first time the brokerage has seen a company pay more than $5,000 per acre for assets in the area, Oatman added. Southwestern Chief Executive Steven Mueller, however, said on a conference call that the deal was based more on the potential of the assets, and he expected it to contribute significantly to cash flow in a few years. The company, which already has assets in Fayetteville shale and northeastern Pennsylvania Marcellus, will add 256 operated and producing horizontal wells and 179 non-operated horizontal wells.
It plans to deploy four to six rigs in 2015 for the new assets and increase that number to 11 rigs by 2017. The average net daily production from the wells was about 56,000 barrels of oil equivalent in September, consisting of 184 million cubic feet of gas, 20,000 barrels of natural gas liquids and 5,000 barrels of condensate, Chesapeake said.
Chesapeake, the second-largest U.S. producer of natural gas, has been selling assets to reduce debt and improve profitability after Aubrey McClendon was forced out as CEO in April last year over spending. Oklahoma City-based Chesapeake said the deal would not impact its growth profile and that it expected its 2015 production outlook to remain at 7-10 percent growth adjusted for asset sales. Southwestern said it would fund the transaction with its existing revolving credit facility and a $5 billion loan from Bank of America. Chesapeake’s shares were trading up 16.7 percent at $20.74, whereas Southwestern Energy’s stock was down more than 11.2 percent at $31.67 at 2:30 p.m. ET on Thursday.