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Chesapeake Closes Southwestern Deal, Will Buy Back Common Stock

Chesapeake Energy Corp. has closed on the sale of 413,000 net acres of natural gas assets in northern West Virginia and southern Pennsylvania to Southwestern Energy Co., and announced a considerable stock buyback. The company hailed the deal as a major part of its more than two year transformation.

Chesapeake closed the deal for $4.975 billion, down $400 million from the previously announced sale price of $5.375 billion (see Shale DailyOct. 16), for some adjustments, including Southwestern's waiver of any future claims related to title defects and environmental liabilities.

The sale's proceeds, combined with Chesapeake's borrowing capacity under its unsecured revolving credit facility, find the company with a liquidity position of $9 billion. Flush with cash, the company announced a $1 billion common stock repurchase program, as well.

"While the figure is down $400 million due to some concessions in the deal, we still believe that the deal is an absolute home run for Chesapeake both operationally and financially, which should help the company continue to improve in 2015 even with a difficult commodity price environment," said Wunderlich Securities analyst Jason Wangler.

Since CEO Doug Lawler took over in 2013, Chesapeake has been working to sell off some assets and shore-up its balance sheet. The company announced in June that some of its drier Appalachian assets would eventually be sold for the right price (see Shale DailyJune 19). It's also lamented wide basis differentials in the region, but Wangler said the Southwestern sale, which amounted to about 7% of Chesapeake’s total production, should help ease pricing issues as production rises elsewhere in its portfolio.

Counting the assets it sold to Southwestern, Chesapeake said when it announced the deal's closing that it had achieved a company production record of 770,000 boe/d.

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