Did Chesapeake Energy Corporation (CHK) Get Ripped off in the Sinopec Shanghai Petrochemical Co. (ADR) (SHI) Deal?

Page 1 of 2

Over the past year or so, Chesapeake Energy Corporation (NYSE:CHK) has been busy selling off several of its oil and gas assets, as the nation’s second-largest natural gas producer tries to raise much-needed cash.

It recently sold off some of its interest in a sizable portion of its Mississippi Lime acreage to a major Chinese oil company. Though the deal brought in a little over $1 billion, the price Chesapeake Energy Corporation (NYSE:CHK) received per acre was just a fraction of what the company said the acreage was worth last year.

Chesapeake Energy Corporation (NYSE:CHK)This raises some serious concerns. Did Chesapeake Energy Corporation (NYSE:CHK) get ripped off? Or does the transaction simply serve as a reminder that beggars can’t be choosers, or distressed sellers can’t expect to receive a desirable price?

Sinopec Shanghai Petrochemical Co. (ADR) (NYSE:SHI)-Chesapeake joint venture
Last month, Chesapeake Energy Corporation (NYSE:CHK) struck a deal with China Petroleum & Chemical Corp (ADR) (NYSE:SNP), otherwise known as Sinopec Shanghai Petrochemical Co. (ADR) (NYSE:SHI), that will give the Chinese energy producer a 50% interest in a substantial chunk of the company’s acreage in the Mississippi Lime formation.

Under the terms of the agreement, Sinopec Shanghai Petrochemical Co. (ADR) (NYSE:SHI) will be getting a 50% stake in some 850,000 net acres controlled by Chesapeake, which comes out to a price per acre of less than $2,400 – less than a third of the $7,000-$8,000 price range that Chesapeake claimed the land was worth in a presentation last July.

The transaction price appears even more underwhelming when you consider that the acreage Chesapeake is parting with includes producing wells and a large amount of booked reserves. Production from the 850,000 net acres averaged roughly 34,000 barrels of oil equivalent per day in the fourth quarter, of which 45% was oil, 46% natural gas, and the remaining 9% was natural gas liquids production. According to Chesapeake’s year-end estimates, the land contains net proved reserves totaling about 140 million barrels of oil equivalent.

A poor showing for Chesapeake
While I wasn’t expecting Chesapeake to receive the lofty per-acre price that the company claimed the acreage to be worth, the fact that it got just a third of the price it was expecting is a bit surprising, especially considering that Aubrey McClendon arranged front row seats for Sinopec Chairman Fu Chengyu at game two of the NBA Finals last June. Here’s a picture of him at Chesapeake Energy Arena in Oklahoma City (that’s him to the right of Derek Fisher).

It’s a little puzzling that McClendon couldn’t use his charm to convince the Sinopec Shanghai Petrochemical Co. (ADR) (NYSE:SHI) chairman to fork over at least a few hundred more dollars more per acre for the Mississippian assets. I mean, c’mon, from $7,000-$8,000 per acre to just under $2,400 per acre? For acreage that was producing 34,000 barrels of oil equivalent per day in the fourth quarter? That’s a pretty sorry showing. But maybe the Sinopec Shanghai Petrochemical Co. (ADR) (NYSE:SHI) chairman’s just not a big fan of basketball.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!