Chesapeake Sells Acreage In Marcellus / Utica -- October 16, 2014

Platts is reporting:

Southwestern Energy's CEO on Thursday said the company's $5.375 billion purchase of 413,000 acres of Chesapeake Energy's southwest Marcellus and Utica shale gas leases and wells would be profitable, even as Wall Street investors expressed displeasure at the company's move.

CEO Steve Mueller rationalized the deal by saying he expects natural gas to keep trading around $4/Mcf, but "the market is missing some of the signals" that future demand will be robust.

Either way, "at 3.50/Mcf forever, we still get good returns," Mueller said on a conference call with analysts following the deal's announcement Thursday.

$13,000/producing acre?

Back in April, 2013, Richard Zeits reported in SeekingAlpha reported:

This morning, Southwestern Energy announced a definitive agreement to acquire approximately 162,000 net acres of leasehold located in Northeast Pennsylvania prospective for the Marcellus Shale from Chesapeake Energy and Statoilfor approximately $93 million.

The key acreage is located in Susquehanna, Wyoming, Tioga and Sullivan counties. The acreage is mostly undeveloped - current net production from these properties is approximately 2 MMcf/d from 17 gross wells (1.2 net wells).

The transaction's price may come as a surprise and major disappointment to Chesapeake shareholders as it implies valuation of just $574 per acre (value of existing production is de minimis).

While the acreage is located mostly on the fringes of the Northeast Pennsylvania's dry gas sweet spot, the price still appears surprisingly low, particularly given that the acreage includes 51,000 net acres in Susquehanna County.

To put this in perspective, Cabot Oil & Gas  whose most important asset is its ~200,000-acre leasehold located in Susquehanna just 10-20 miles from the acreage that Chesapeake is selling, is a company with $14.4 billion market capitalization, which exceeds Chesapeake's.

Of Cabot's acreage, only approximately half is currently held by production. Excluding Cabot's production and value of oil properties, the equity market valuation implies over $30,000 per Cabot's undeveloped acre in Susquehanna, a striking difference relative to the price received by Chesapeake.