Chesapeake Energy has agreed to divest interests in the Utica Shale oil and gas assets located in Ohio to US-based oil and gas firm Encino Acquisition Partners (EAP) for approximately $2bn.
As per the deal, Chesapeake Energy will sell more than 900,000 net acres of leasehold spanning the condensate, liquids-rich and dry gas windows of the Utica play in Ohio.
The assets considered for the sale also include approximately 900 wells which produce more than 600 million cubic feet of gas equivalent per day and hold 85% of the acreage.
Chesapeake president and CEO Doug Lawler said: “By divesting our position in the Utica and using the proceeds for debt reduction, we will not only significantly improve the health of our balance sheet, but we will also accelerate progress toward our strategic goals of reducing our debt, improving our margins and reaching sustainable free cash flow neutrality.
“Moving forward, we will continue to target our long-term goal of improving our leverage ratio to two times net debt to EBITDA.
“We remain committed to generating higher returns on invested capital by directing our investments to the highest-return opportunities across our five diverse, multi-zone basins.”
EAP, which was formed by Canada Pension Plan Investment Board (CPPIB) and Encino Energy (Encino), said it plans to operate multiple drilling rigs on the properties in order to boost production and cash flow.
In support of the proposed deal, about $1bn is planned to be invested by CPPIB in EAP and will own approximately 98% of the partnership.
Additionally, Encino plans to invest in EAP, alongside CPPIB, and operate the acquired assets on behalf of EAP.
CPPIB energy & resources managing director, head Avik Dey said: “We are pleased to support EAP’s acquisition of these highly attractive Utica Shale assets, which provides CPPIB with meaningful exposure to a leading North American natural gas play and aligns with the growing focus on energy transition.
“This transaction represents a unique opportunity to acquire a foundational asset that has a large inventory of wells with a well-established production history, and will be managed by Encino, whose management has deep operational and development expertise in the Appalachian region.”
Planned to be completed in the fourth quarter of 2018, the transaction is subject to certain customary closing conditions, including the receipt of third-party consents.