Chesapeake Energy Corporation (CHK): The Jettisoning Continues

It’s been a really busy year for Chesapeake Energy Corporation (NYSE:CHK) as it’s been jettisoning assets at a fairly steady pace. The company has already announced $2.3 billion in divestitures so far this year which the it says keeps it on target hit the planned $4 billion-$7 billion of dispositions before the end of the year. Amid all the wheeling and dealing, there is one important insight that investors need to realize. Chesapeake Energy Corporation (NYSE:CHK) is keeping the best assets for itself.

A lot has been made of Chesapeake Energy Corporation (NYSE:CHK)’s sales this year. We’ve wondered if the company had been ripped off when it entered into a joint venture with some of its Mississippi Lime acres. We’ve also pondered if the company was simply now in fire-sale mode to meet its budgetary needs; it’s no secret that Chesapeake Energy Corporation (NYSE:CHK)’s greatest challenge is funding its growth plans.

The thing is, when you look back at all these sales, you see that the asset exodus has one thing in common. None of these assets are actually core to the company’s business. Take its two recent sales in the Marcellus, a $93 million sale of 162,000 acres to Southwestern Energy Company (NYSE:SWN) and a $113 million sale of 99,000 acres to EQT Corporation (NYSE:EQT) . In both cases we have a sale of acres outside of what Chesapeake Energy Corporation (NYSE:CHK) has deemed its “core of the core.” Further, both sales had little current production.

The EQT Corporation (NYSE:EQT) sale included just three currently producing wells with another seven scheduled to come on line by the end of the year. In total these wells represent about a billion cubic feet equivalent of production. What’s even more interesting, EQT Corporation (NYSE:EQT) pointed out that almost half of the acres it was acquiring wouldn’t even be developed as many had near-term lease expirations while others were too scattered to be developed.

The Southwestern deal also included little current production as the 17 gross wells only produce 2 MMcf of natural gas per day. These were largely undeveloped acres much closer to Southwestern’s current leasehold than Chesapeake Energy Corporation (NYSE:CHK)’s core acreage. Again, we see an instance where the company was able to jettison an asset that really didn’t have a whole lot of value for Chesapeake.

Even more recently we’ve seen Chesapeake Energy Corporation (NYSE:CHK) sell off some of its remaining midstream assets. In one deal it sold certain of its Granite Wash assets to Markwest Energy Partners LP (NYSE:MWE) for $245 million in cash, while in an earlier deal Chesapeake sold its Mississippi Lime gathering and processing assets to the SemGroup Corp (NYSE:SEMG) for $300 million.

There’s one other key takeaway from these deals. While Chesapeake Energy Corporation (NYSE:CHK) is getting cash up front, it’s also saving itself hundreds of millions in future capex. Take the SemGroup Corp (NYSE:SEMG) deal, which included the Rose Valley I and II processing plants. The first plant won’t be operational until early next year, while the second plant has a 2016 start date. Further, it will require another $125 million in additional capital expenditures to bring both plants online.