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Monday, February 25, 2013

Chesapeake's Mississippi Lime JV Disappoints

Our latest for Seeking Alpha:

Chesapeake has sold 425,000 acres to Sinopec for $1.02 billion. That is $2,352 per acre which is less than one third the value that Chesapeake had suggested the property is worth just a few months ago.

But it is even worse than that, because this acreage also carries with it a significant amount of production and booked reserves. Sinopec's half of the acreage will bring with it 17,000 boe/day of production and 70 million barrels of proved reserves. Chesapeake's presentations historically have pointed to the valuation of non-producing land that had not had much capital invested in it.
In other words, I would have expected Chesapeake's Mississippi Lime acreage to garner $7,000 to $8,000 per acre without any production.

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