Chesapeake Energy Corp. received $412 million for some natural gas properties in the Anadarko and Arkoma basins using yet another volumetric production payment (VPP). The Oklahoma City-based independent last month estimated it would raise $425-475 million for the assets.

The sale to Argonaut Private Equity includes proved reserves that total around 98 Bcfe and current output of 60 MMcfe/d net. Goldman Sachs Group Inc.’s GS Loan Partners financed the transaction, which valued the gas at $4.20/Mcf Chesapeake closed the transaction on Dec. 31, and it retained drilling rights on the properties below currently producing intervals.

VPP transactions usually give the buyer a share of the leasehold’s produced oil or gas in exchange for an upfront payment.

Chesapeake, which has been strapped for cash after borrowing to expand its onshore gas drilling program, in December said it would enhance its liquidity by tailoring a fourth VPP for its producing assets in the Anadarko and Arkoma basins (see Daily GPI, Dec. 9, 2008). Another VPP is planned for Chesapeake’s South Texas assets, which hold estimated proved reserves of 80 Bcfe and production of 70 MMcfe/d net.

Chesapeake in the past few months has found success in using the VPPs to obtain much needed cash, but it is not alone in trying to find ways to improve its value.

Moody’s Investors Service Monday dropped its outlook to “negative” for the entire independent exploration and production (E&P) sector because of the “precipitous decline” in oil and gas prices. The fall in prices likely will result in “abnormally low cash margins and fundamental credit deterioration” for the industry, Moody’s noted.

There is a “significant risk that E&Ps have entered a prolonged period of abnormally low cash margins and returns due to persistent demand-driven price declines outpacing cost reductions and supply response,” said Moody’s Senior Analyst Peter Speer. “Many E&Ps had fully ramped up capital spending and were increasing leverage just as the market turned. As a result, some companies are ill-prepared for a downturn.”

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