Tuesday, October 5, 2010

Barclays (NYSE:BCS) Affilate Acquires Future Production from Chesapeake (NYSE:CHK)

Chesapeake Energy Corp. has sold some of the future production at its wells in the North Texas Barnett Shale field to a Barclays (NYSE:BCS) affiliate for $1.15 billion.

The natural gas producer said they're going to use the capital to shrink borrowing on a revolving credit facility, but ratings agencies in many cases consider volumetric production payment (VPP) deals as a form of debt as well.

About 8 percent of production for 2011 and 3 percent of year-end 2010 reserves are included in the deal by Chesapeake.

Included with the five-year deal will be close to 280 million cubic feet of daily production and 390 billion cubic feet of proven reserves in 2011.

Ticonderoga Securities analyst Daniel Pratt said this could lead to an underperformance of Chesapeake shares.

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