Chesapeake Energy Exits Mississippi Lime -- Richard Zeits -- February 12, 2018

Link here to SeekingAlpha.

Summary:

• Chesapeake received an estimated $1,000 per acre for its Miss Lime acreage, excluding production
• the price received is reasonable and the transaction as a positive, albeit hardly material, development for the stock
• given the improvement in oil prices, Chesapeake is likely to put additional asset packages in the Mid-Continent on the auction block
• Chesapeake Energy announced last week its exit from the Mississippian Lime, the play that the company helped to pioneer several years ago
• we interpret the $0.5 billion price received for the properties as a success for Chesapeake

From the article:

Why are the buyers willing to pay half a billion dollars for properties that are producing less than 5,000 barrels of oil per day, have been extensively drilled and have a high operating cost?

Several factors could be the reason:

• A large portion of production is obviously quite mature and is characterized by a relatively low decline rate - which makes it more valuable.
• The buyer may find some promise in other zones on this stacked-pay acreage, which is held by production and represents a long-term exploration option in the event oil prices move significantly higher.
• The acquirer may be betting on achieving a meaningful increase in production volumes via workovers (which, arguably, were not the top capital allocation priority for Chesapeake).
• The sale includes production infrastructure that was originally configured for larger volumes and may have some value.

Assuming that the market value of the existing production is $250 million, the price received for the acreage is $1,000 per acre. We note again that the acreage has been significantly exploited. While several new play concepts have been advertised by Chesapeake and its peers, the success of those new plays is yet to be demonstrated. In this context, the price per acre received is quite reasonable.