Energy Prospectus

This deal should draw a lot of attention to Sweet 16 member Gulfport Energy (GPOR). They have a very large block of acreage in the core of the Utica Shale.

OKLAHOMA CITY (AP) -- Chesapeake Energy Corp. announced plans for two transactions that could eventually bring in as much as $3.4 billion from leasing some of its land in Ohio's Utica Shale.

The energy producer said on Thursday that it has signed a letter of intent with an "international major energy company," that it didn't name, for a joint venture. The venture will give the partner a 25 percent interest in about 650,000 acres of natural gas land in the Utica Shale.

The company's CEO, Aubrey McClendon, had said in July that the Utica field "should be worth $15 billion to $20 billion for Chesapeake shareholders."

Chesapeake is the country's second-largest producer of natural gas. U.S. natural gas supplies have grown dramatically in recent years as drillers, such as Chesapeake, have learned to tap huge fields of natural gas trapped in shale formations deep under several states.

Chesapeake owns about 570,000 of the acres in the venture, with the rest owned by Houston-based EnerVest Ltd. Chesapeake said the price is $15,000 per acre, or about $2.14 billion to Chesapeake and $300 million for EnerVest.

The agreement is expected to be signed by mid-December. Chesapeake said it will get $640 million in cash at closing, and $1.5 billion in future payments by the end of 2014.

The Oklahoma City company will operate the joint venture.

Chesapeake also said it sold a $500 million stake in a new entity called CHK Utica LLC to EIG Global Energy Partners. CHK is a wholly owned subsidiary that owns 700,000 acres in the Utica Shale area. Chesapeake said it plans to sell another $750 million worth of CHK shares to other investors, including limited partners of EIG.

Also Thursday, the company said its third-quarter net income was $879 million, or $1.23 per share, for the quarter that ended Sept. 30. That was up from $515 million, or 75 cents per share, during the same period last year. Revenue rose 54 percent to $3.98 billion, from $2.58 billion a year earlier.

Without special items it would have earned $496 million, or 72 cents per share. Analysts had been expecting a profit of 66 cents per share on revenue of $2.71 billion.

Chesapeake shares had risen $1.02, or 3.6 percent, to close at $29.03 before the company reported the new deals and earnings. Shares rose another $1.53, or 5.3 percent, to $30.56 in aftermarket trading.

CHK got $15,000 per acre for a large chunk of their acreage. GPOR's 62500 net acres are worth 55% of its market cap at 15m per acre.

Take a look at after hours trading on EVEP. Very few outside of EPG know much about Gulfport. They will tomorrow.

Analyst's view of CHK deal.

Long Awaited Utica Joint Venture Inked – Wherein CHK sold a 25% interest in 570k acres (out of total 1.5mm-acre position in the play), in the liquids-rich trend of the play in eastern OH to an unidentified international energy company. Closing expected by mid-December, at which time the buyer’s identity will likely be revealed. Proceeds of $2.14bn ($640mm upfront cash plus $1.5bn in drilling carries to be utilized through 2014) value the assets at $15k/acre on an undiscounted basis. CHK will operate the JV, and while it believes that it can meet the JV’s drilling commitments with a required ten-rig program, it plans a more aggressive ramp (five rigs now to 20 by YE12 and 30 by YE14). In a separate transaction, CHK will sell $500mm of perpetual preferred stock in a formed fully-owned subsidiary, CHK Utica L.L.C., which owns ~700k net acres in the play, including the entire JV AMI acreage, to EIG Global Energy Partners, with plans to sell up to $750 million of additional shares to outside investors. CHK has retained all the common interests in CHK Utica L.L.C. We view these transactions favorably as they allow CHK to recoup more than its entire leasehold investment in the Utica, although the exclusion of its remaining ~900k acres in the play from the JV’s AMI will raise questions with regard to the quality of this acreage.

In addition to being great news for GPOR, this also reinforces my bullish outlook for the onshore drillers. The Utica Shale will be another high demand area for rigs.