Chesapeake Sells Utica Shale Stake to Total (CHK, TOT, BP, PXP, SD, CRZO)

In yet another of the deals that shakes up the landscape of US shale gas production, Chesapeake Energy Corp. (NYSE: CHK) has formed a joint venture with Total SA (NYSE: TOT) and privately held Enervest in which the French oil giant will pay $2.32 billion for a 25% stake in 619,000 net acres in production from the Utica shale gas play in eastern Ohio. Chesapeake has already done a deal with Total in the Barnett shale play in Texas, as well as deals with BP plc (NYSE: BP) and Plains Exploration & Production Co. (NYSE: PXP) in Arkansas, and Statoil ASA (NYSE: STO) in the Marcellus shale play in Pennsylvania.

Chesapeake isn’t alone in doing these joint venture deals. SandRidge Energy Inc. (NYSE: SD) and Carrizo Oil & Gas Inc. (NASDAQ: CRZO) have also recently sold stakes in shale gas plays.

In the latest deal, Total paid Chesapeake about $610 million in cash and will spend an additional $1.42 billion on drilling and completion costs anticipated through the end of 2014.

In the press announcement, Chesapeake’s CEO enumerated the company’s joint ventures and their value:

This Utica transaction is our seventh significant JV and in these seven JVs, Chesapeake has sold approximately 1.5 million net acres for total leasehold consideration of $14.8 billion while retaining 3.6 million net acres as of the JV date with an indicated value by the JV partners of $45.7 billion.

The Utica shale play, like the Eagle Ford play in south Texas, is liquids rich and far more valuable due to the high price companies can get for both the natural gas liquids and the oil that can be extracted using hydraulic fracturing (fracking).

But production companies may have hit a snag in Ohio. On Saturday, a 4.0-magnitude earthquake hit the Youngstown, Ohio, area and led to the state’s closure of all 177 waste water injection wells. There is some concern that the practice of injecting the recovered fracking fluids back into the ground is causing some of the quakes that have occurred in Ohio, Pennsylvania, Arkansas, and Texas.

The injection wells in Ohio are about 9,000 feet below the surface, making any risk to drinking water extremely small. A recent US EPA report on groundwater contamination from fracking in Pavillion, Wyoming, studing wells less than 300 feet below the surface.

Chesapeake’s latest joint venture, combined with the sale of its pipeline assets in the Marcellus shale announced last week, puts about $3.2 billion onto the company’s books. Chesapeake intends to garner about $7 billion in 2012 by selling assets, holding an IPO for its own oil field services company, and creating joint ventures. The company also plans to increase production by 30%. The goal is to reduce its outstanding debt by 25%.

Chesapeak’s shares are up nearly 3.5% in pre-market trading this morning, at $23.05 in a 52-week range of $22.00-$35.95.

Paul Ausick