Devon recently agreed to pay $6 B for 82,000 acres in the Eagle Ford with 53,000 barrels of energy production per day.
CHK has 600,000 acres in the Eagle Ford with current daily production of 95,000 barrels of energy
production per day. What does this imply for all shareholders? Well, CHK previously sold 60,000
acres in the less productive northern part of the Eagle Ford for $1 billion leaving them the best of
the leasehold. If CHK sold only its existing production and the same sweet spot acreage as Devon
acquired in the Eagle Ford, the buyer would still have 50% more production than what Devon acquired so I would assume it should should pay 50% more or $9 billion.
What is the other 520,000 acres worth. Instead of paying $60,000 per acre as Devon paid, lets mark it down to $30,000 for the rest of CHK's resource which is in the rich oil and liquids area of the Eagle Ford. The rest of that land without any wells on it which will take the next 20 years to drill is worth at least $15 billion at a price of $30,000. Am I crazy valuing that oil and liquids land at $30,000 per acre? It will probably be worth a great deal more in 5 years.
The market is currently valuing CHK at $16 billion. Devon is paying $6 billion for about 10% of the same acreage in the Eagle Ford and 50% less production. Chesapeake also has 12,5 million other acres with hydrocarbons excluding the Eagle Ford. You can purchase that acreage for free if you assume that the current Eagle Ford holdings of CHK are only worth the current market value of the stock. Devon Energy has established that CHK's interest in the Eagle Ford is probably worth more than the current market value of CHK.
Give the CEO another year of streamlining the company operations and unloading the the 10 oil and gas service companies and then you can better establish what the oil and gas acreage by itself is worth. I also assume the next year will see another acquisition or two similar to Devon's acquisition.
Yes, an excellent analysis, but I have to think that insiders in the industry will gradually focus on the Devon valuation and put Chesapeake in play. A lot of the Ichan-friendly moves make the company more marketable and more subject to a takeover.
I am all about the Eagle Ford,but CHK's acreage is not where the real action is going on... I don't know exactly where the company that Devon bought from is located. If it's close you have a good argument for value in assets... The hot spot is east of CHK and is right in the middle of the eagle ford and produces 2 times as much oil... Don't get me wrong CHK has prime acreage down there,just being realistic..
One more point. CHK has only been drilling in the Eagle Ford for about two years. Their production is still 40,000 more barrels a day of energy than Devon's acquisition in the
The best acreage is EOG's. The acreage in Devon's acquisition and CHK's is second best. Still, Devon is paying $6 billion for 82,000 acres. A monster sum of money. When one of the top multi-nationals including the Chinese wants to buy another chunk of land they will have to approach CHK in a year or two and that could bring in $6 billion or more which shows how undervalued CHK will be once it improves the balance sheet over the next year.
There will be 1,000 less employees on the payrol in 2014l, capex will be reduced and hopefully in a year they can unload the 10 oil and gas service companies for a couple of billion dollars and use that to pay down the debt. Once those things happen, I see the share price exploding.