Chesapeake on Permian asset sale: The hottest oil investment in years

Chesapeake Energy Corp. might rake in more than $5 billion if the sale of its oil assets within the Permian Basin pushes through according to Aubrey McClendon, company CEO.  The asset was initially valued at $5 billion, but valuations may still appreciate based on a recently concluded $6.82 billion Permian oil field sale by another company.

He said it will be the world’s largest oil asset sale as no oil asset auction of this magnitude has occurred in many years, and probably won’t be seen in the years to come.

The company intends to cover a funding shortfall which, according Fitch Ratings, may run to $10 billion before the year ends.  If they can’t look for funding sources, it might end up getting cash strapped by 2013.

McClendon declared that, “For a company that wants to get bigger in the Permian or wants to get in the Permian, this is the best opportunity.”

While the Chesapeake is working out the asset sale, it has, in the meantime, turned to the Goldman Sachs Group and another financial institution for a $3.0 billion credit facility.

Texas-based Concho is again investing in oil and gas properties and has purchased assets from Three Rivers Operating Co, including more than 300,000 acres of Permian land.  Experts estimate that Concho is buying said property at $3,000 per acre.

This is Concho’s third oil asset purchase in the region in less than a year, and Timothy Leach, the company’s Chairman and Chief Executive Officer, said it will add more oil rigs in the Permian.

Forbes reported that Occidental Petroleum Corporation submitted a $3.5 billion bid for Chesapeake’s Permian asset but this was reportedly rejected by the owners.

Oil rigs operating in the area went up to 273 by end of 2011, approximately 300 percent increase from 2010.  Apache Corporation actively operates in the area and plans to invest in oil rigs again this year.  Estimated oil reserves in the Permian area are 4.5 billion barrels.

Mclendon expects to unload the company’s Permian holdings by the third quarter of this year.

The company lacks funds thus, much as it wants to, it is unable to step up drilling in the Permian.  He said the existing 12 rigs will have to be supplemented with 24 more rigs to make operations more viable.

Mclendon seems very optimistic about the saleability of its Permian asset and mentioned that, “To imagine that assets are unsellable in the Permian Basin, which is the world’s hottest acquisition basin today, is really unthinkable.”