A similar trend is unfolding in the dry gas portion of the Marcellus, with producer after producer pulling their rigs from the area. EXCO Resources Inc (NYSE:XCO) , for instance, has slashed its rig count from four to one and is heavily downsizing its regional headquarters. Similarly, Talisman Energy Inc. (USA) (NYSE:TLM) , which also currently only has one rig running in the play, has reduced its capital allocation to the Marcellus by 65% and instead has diverted its focus to the oilier Eagle Ford Shale in Texas.
However, the wet gas window of the Marcellus continues to see relatively strong drilling activity. For instance, Range Resources Corp. (NYSE:RRC) is planning on directing roughly 80% of its $1.3 billion capital budget toward drilling operations in the Marcellus. Thanks to the superior economics of the wet gas portion of the play, the company has realized higher profit margins for its natural gas liquids production.
Final thoughts
Some analysts expect Chesapeake to become much more aggressive in its attempts to meet its year-end divestiture target. Analysts at Stifel Nicolaus, a brokerage and investment banking firm, wrote in a note to investors that “with the new management team, the company will be hitting the bids on asset sales rather than holding on to assets if the bids are not close to the underlying value.”
Between the Haynesville and the Marcellus, it would probably make more sense for Chesapeake to part with its Marcellus acreage, since its Haynesville assets would likely fetch an undesirable price. Due to relatively higher demand for drilling in certain portions of the Marcellus, Chesapeake’s assets there would likely sell for a price closer to the company’s estimates of potential value.
Alternatively, it may also make sense for Chesapeake to part with some of its undeveloped acreage in liquids-rich plays, especially the Eagle Ford, where the company reckons an acre should easily fetch upwards of $30,000. Other liquids plays that the company thinks should be able to generate strong proceeds include the Utica Shale, where Chesapeake lays claim to roughly 900,000 net acres, and the Anadarko Basin, where it commands one million net acres.
The article Which Asset Will Chesapeake Sell Next? originally appeared on Fool.com.
Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Range Resources. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.
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