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Chesapeake Energy converts Texas oil into natural gas

by SuperiorInvest

Chesapeake Energy, a major driver of the U.S. shale energy revolution, has struck a $1.4 billion deal to divest most of its Texas oil assets as it abandons mining in favor of 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 deal in a strategic pivot away from oil. Future production is concentrated in the gas-rich shale areas of the Haynesville Basin in Louisiana and the Marcellus Basin in Appalachia.

Based in Oklahoma Chesapeake he helped pioneer the horizontal drilling and hydraulic fracturing techniques in shale rock that have turned the US into the world’s largest hydrocarbon producer over the past decade. At its peak in 2008, the company was the nation’s second-largest gas producer after ExxonMobil, with a market capitalization of $35 billion. Its CEO at the time, Aubrey McClendon, became the highest-paid executive in the US.

The company then deepened its exposure to oil, culminating in the $4 billion purchase of WildHorse Resource Development in 2018, which gave it the assets it is now selling. Wildfire Energy is the reincarnation of WildHorse with a President, CEO and CFO who held leadership roles at the previous company.

The shift to oil and a series of debt-ridden land grabs forced Chesapeake into bankruptcy as energy demand and prices collapsed in the early days of the Covid-19 pandemic.

Chesapeake emerged from bankruptcy in 2021 and has since been gradually expanding its gas portfolio. A year ago, CEO Nick Dell’Osso said the company was “committed” to stay in the Eagle Ford Basin to maintain a diverse portfolio.

But the company came under pressure from activist investor Kimmeridge Energy, which holds less than 2 percent of its shares. The group accused her of “lack of strategic clarity” and urged her to focus on the gas.

Chesapeake announced last August plan abandon oil and invest in gas. Dell’Osso said at the time that the decision was driven by better returns on gas assets, where it has managed to cut costs and improve efficiency more compared to oil. He also pointed to a surge in US exports of liquefied natural gas following a global scramble for the commodity fueled by the war in Ukraine.

On Wednesday, Dell’Osso said the sale “marks an important step on our way to exit” the Eagle Ford, one of the largest shale fields in the US.

As part of the deal with Wildfire, Chesapeake will sell 377,000 acres in the Eagle Ford’s Brazos Valley, out of a total of 610,000 it has in the basin. The assets produce about 28,000 barrels of oil equivalent per day.

Dell’Osso said the company remained “actively in contact with other parties” regarding the rest of its position in the basin.

“Chesapeake is completing its transformation back to where it started as a natural gas company and will be well-positioned to use gas as a transition fuel in the coming decade,” said Andrew Gillick, managing director of energy consultancy Enverus.

Mark Viviano, director of public equities at Kimmeridge, told the FT on Wednesday that Chesapeake’s sale marked “an important step forward in the execution of their strategy to focus on their low-cost gas assets”.

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