Chesapeake Energy Corp.’s share price up, to sell its natural gas and oil shale fields to Southwestern Energy Co. in a $5.4-billion deal

The shares of Chesapeake Energy Corp. increased the most in more than half a decade after the company revealed that it intends to dispose of its natural gas and oil shale fields by selling them to Southwestern Energy Co. The deal is estimated to $5.4 billion and is considered the largest divestment of the company.

The Chief Executive Officer of the company, Mr. Doug Lawler, said in a statement, cited by Bloomberg: “Today’s announcement marks a major step in Chesapeake’s transformation and a dramatic improvement in our financial strength as we seek to maximize value for our shareholders.”

According to Chesapeakes statement, the sale includes 1 500 wells and drilling rights located on 413 000 acres in the southern Marcellus Shale and eastern Utica Shale in Pennsylvania and west Virginia. Analysts at UBS said the price of the deal, which amounts to about $13 000 per acre, was a “blowout”. The transaction is at the amount of about 39% of the market value of Chesapeake before the deal was announced.

The properties, which will become a part of Southwestern Energys assets, generate an average daily production of about 56 000 barrels of oil equivalent in September 2014, which consists of 5 000 barrels of condensate, 84 000 Mcf of gas and 20 000 barrels of natural gas liquids.

The Chief Executive Officer of Southwestern Energy, Mr. Steven Mueller, also commented on the purchase in a call with analysts, cited by the Financial Times: “This acquisition isn’t based on the past, it’s based on the future. And we believe there’s more than enough potential to grow at the pace we need to grow to make this valuation look very, very good.”

The deal between the two companies is expected to be finalized before the end of 2014. Mr. Lawrel noted that the sale is not to affect the production growth targets of Chesapeake.

Chesapeake Energy Corp. was 16.99% up to close at $20.79 per share yesterday, marking a one-year decrease of 20.14%. The company is valued at $11.83 billion. According to CNN Money, the 21 analysts offering 12-month price forecasts for Chesapeake Energy Corp. have a median target of 29.60, with a high estimate of 37.00 and a low estimate of 21.00. The median estimate represents a +42.38% increase from the last price of 20.79.