Zacks_Analysts' Blog : Chesapeake in New Asset Sale Deal - Analyst Blog

Independent energy company Chesapeake Energy Corporation ( ">CHK )  signed a deal with Midland, Texas-based oil and gas explorer Clayton Williams Energy ( ">CWEI )  to sell up to 75% stake in its acreage at the Reeves County in the same state. The former entered the deal through its subsidiary Chesapeake Exploration, L.L.C.

Chesapeakeholds about 75,000 acres in the middle of the developing oil and gas play called the Wolfbone. Under the terms of the agreement, Clayton Williams, in return for the land interest, will drill at least 20 wells in the first year. Clayton Williams can also exercise the option of exploring 20 more earning wells every year over the next four years to acquire all of Chesapeake's acreage.   

This contract is in line with Chesapeake’s 25/25 plan, aimed at reducing its long-term debt (through monetizing its assets and a reduction of lease-hold spending) by 25% during 2011–2012. Simultaneously, the company targets to boost its natural gas and oil production by 25% during the same time frame.

In this regard, Chesapeake closed its deal with China's top offshore oil producer CNOOC Limited (CEO) for the sale of stake in its U.S. Niobrara shale project for $570 million. Further, the company recently announced the sale of its Fayetteville Shale assets to mining giant  BHP Billiton (BHP) for $4.75 billion in cash.

Chesapeake Energy is engaged in the acquisition, development, and production of onshore U.S. natural gas resources. The company has also demonstrated considerable drilling prowess, capitalizing on its extensive inventory of acquired undeveloped acreage to make substantial reserve additions.

We are maintaining our long-term Neutral recommendation on the stock. Chesapeake currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.