OKLAHOMA CITY (AP) — Chesapeake Energy Corp. is selling its interests in the Barnett Shale formation in North Texas to Dallas-based Saddle Barnett Resources LLC to increase operating income and reduce expenses.
The Oklahoma City-based company said Wednesday it has agreed to end its natural gas gathering agreement with Williams Partners, for which Chesapeake will pay $334 million in cash. Chesapeake has also renegotiated its agreement with Williams for the Mid-Continent area in exchange for $66 million.
Saddle Resources, owned by private equity firm First Reserve, is led by former EXCO Resources CEO Doug Miller.
The Barnett transaction involves about 215,000 acres and 2,800 operated wells, which produced an average of about 65,000 barrels of oil equivalent per day in the second quarter. Proven Barnett reserves are about 81 million barrels of oil equivalent.
Chesapeake CEO Doug Lawler says exiting Barnett will increase operating income through 2019 by up to $300 million a year.
“Today’s announcements mark a major step in our continued progress to transform Chesapeake,” he said. “By exiting the Barnett, we expect to increase our operating income for the remainder of 2016 through 2019 between $200 and $300 million annually, eliminate approximately $1.9 billion of total future midstream and downstream commitments, and increase the PV-10 of our proved reserves.”
PV-10 is the current value of approximated oil and gas revenues in the future, minus anticipated expenses, discounted using a yearly discount rate of 10 percent.