Chesapeake Sells Another Marcellus Package At Low Valuation

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A definitive agreement to sell a significant acreage package (in Marcellus and Utica located in southwestern Pennsylvania) has been signed by Chesapeake Energy.  EQT Corporation will acquire approximately 99,000 net acres of the Marcellus and Utica shales and 10 horizontal Marcellus wells.  These assets are located in Washington County Pennsylvania and will be purchased for approximately $113 million from Chesapeake and Statoil. 

EQT disclosed key information about the transaction which explained the valuation of acreage in some of the more sought-after areas. Fifty three million of the total purchase price will be allocated to the existing 10 Marcellus wells and the remaining $60 million will be for the undeveloped acreage, according to EQT.

Three of the Marcellus wells are currently producing and the remaining seven will be online by the end of 2013.  The average lateral length of the existing wells is 4200 feet that’s a total of approximately 54.0 BCFE of proven developed reserves.  This disclosure helps us estimate the expected EUR’s of the acquired wells.  Say for instance that the three producing wells have remaining reserves of 2 to 4 BCS each and that the seven remaining wells are in the 6 to 7 BCF per well range.

Developed reserves of approximately $1.00 MCFE are confirmed by the transaction values.  Let’s assume that the seven nonproducing wells are complete and are currently waiting on pipeline. A discount rate in a 12 to 15 percent range are implied by the price.  If the wells are cased and have not been completed, the implied discount rate is closer to 10 percent, based on current commodity strip pricing.

Sixty seven thousand Marcellus acres and 32,000 dry Utica acres are included in the acquisition. EQT is expecting that 42,000 Marcellus acres will not be developed due to near-term lease expirations. The remaining 25,000 Marcellus acres are located in Washington, Greene, and Allegheny counties which is within EQT’s core Marcellus development.  This core acreage will contribute to the company’s development using its preferred method of well pad drilling and extended laterals.

Based on these assumptions, the 56,000 undeveloped Marcellus and Utica acres are valued at approximately $1,071 per acre, excluding the 42,000 expiring acres.  The valuation implies $2,400 per undeveloped acre if only the 25,000 core Marcellus acres are counted.  Both valuations are substantially lower than transactions which preceded this one a few years ago, which were priced between $4,000 an $5,000 per acre or higher.

This deal certainly eludes to a buyer’s market in US oil and gas mergers and acquisitions.

The LuAnn Capital Group is a global Mergers and Acquisitions advisory firm with focus on selective industries. 

In every step of the mergers and acquisitions process, we pay attention to our clients needs. We listen. We respond. We’re more accessible to our clients than larger companies, whether the issue is small-business valuations, small-business marketing tips, exit strategies or other aspects involved in the process of selling a company.

You will benefit from our extensive network of contacts and resources connected with business acquisitions and business mergers. Our competitive pricing model enhances our consulting services, which are geared toward value incrementation and a successful business exit strategy.

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