Chesapeake Energy, one of the largest natural gas producers in the United States, has announced that it has sold its remaining assets in the Eagle Ford basin to SilverBow Resources, a Houston-based oil and gas company, for $700 million. The deal marks the completion of Chesapeake’s exit from the south Texas basin, where it had been operating since 2010.
Chesapeake’s strategy to reduce debt and focus on core areas
The sale of the Eagle Ford assets is part of Chesapeake’s strategy to reduce its debt and focus on its core areas of operation in the Powder River Basin, the Marcellus Shale, and the Haynesville Shale. The company emerged from bankruptcy in February 2021, after restructuring its balance sheet and eliminating about $7.8 billion of debt. Since then, it has been divesting its non-core assets and streamlining its portfolio.
The Eagle Ford assets that Chesapeake sold to SilverBow consist of about 42,000 net acres and about 540 wells in Dimmit and Webb counties, along with related property, plant and equipment. The assets produced about 30,000 barrels of oil equivalent per day in the second quarter of 2021, of which about 70% was oil. The deal is expected to close in the fourth quarter of 2021.
Chesapeake’s CEO Doug Lawler said in a statement that the sale “represents another significant step in our ongoing transformation and our commitment to disciplined capital allocation”. He added that the company will use the proceeds to pay down debt and invest in its “high-return growth opportunities”.
SilverBow’s expansion in the Eagle Ford basin
SilverBow, on the other hand, sees the acquisition as an opportunity to expand its presence and scale in the Eagle Ford basin, where it has been operating since 2013. The company said that the deal will add about 160 million barrels of oil equivalent of proved reserves and about 40% of production to its portfolio. It also expects to achieve operational synergies and cost savings from the integration of the assets.
SilverBow’s CEO Sean Woolverton said in a statement that the acquisition “is a natural fit for SilverBow as it leverages our existing Eagle Ford expertise and infrastructure”. He added that the deal will enhance the company’s “ability to generate strong returns and free cash flow for our shareholders”.
The outlook for the Eagle Ford basin
The Eagle Ford basin is one of the most prolific shale plays in the United States, with an estimated 13.9 billion barrels of recoverable oil and 113.5 trillion cubic feet of recoverable natural gas. The basin spans over 26 counties in south Texas and covers about 30,000 square miles. It is known for its high-quality crude oil and natural gas liquids production.
However, the basin has also faced challenges in recent years due to low oil prices, pipeline constraints, environmental regulations, and competition from other shale plays. According to data from Baker Hughes, the number of active rigs in the Eagle Ford basin has declined from a peak of 259 in October 2014 to 33 as of August 13, 2021.
Despite these headwinds, some analysts believe that the Eagle Ford basin still has potential for growth and profitability, especially for operators who can optimize their operations and leverage their existing infrastructure. According to a report by Wood Mackenzie, the Eagle Ford basin could generate about $10 billion of free cash flow in 2021, assuming an average oil price of $60 per barrel.
