The natural gas and oil in Ohio's Utica Shale is going to help Chesapeake Energy's debt-ridden balance sheet -- whether Chesapeake is the firm that extracts the fuels or not.
Through a listing on the website of Meagher Energy Advisors, Chesapeake has put more than 337,000 acres across 19 eastern Ohio counties up for sale -- about one-fourth of the company's total Utica holdings.
More than 80 percent of the land for sale is held-by-production, meaning landowners are locked into current contracts and cannot renegotiate for more money with a new company. Chesapeake said the areas where it is looking to sell are places where its land ownership is less concentrated and company leases aren't as side-by-side as in other parts of the state.
The Oklahoma City driller is the biggest in the country to have such a substantial stake and financial obligation in Ohio's counterpart to the Marcellus Shale region. In the past, Chesapeake has promised such lucrative returns from that area that beleaguered CEO Aubrey McClendon called it "the biggest thing economically to hit Ohio, since maybe the plow."
Scattershot public data haven't stopped Mr. McClendon from extolling the promise of the Utica, continuing a "trust me" line to shareholders while offering little evidence to fact-check those claims. Ohio regulators generally wait months before receiving production reports from Chesapeake, and industry analysts say the company's sky-high estimates fall back to earth as more information is revealed.
The Utica potential is especially being scrutinized as fallout continues over an undisclosed loan program that allowed Mr. McClendon to raise money by borrowing against personal stakes in company wells. Mr. McClendon lost his position as chairman of the board as a result of the mortgages, although he remains CEO, and a majority of the directors are to be replaced by shareholders at the company's annual meeting on Friday.
Chesapeake has said on analyst calls that internal reports on exploratory wells in the Utica signal cash-heavy days ahead, but any prospective buyer has to sign a confidentiality agreement to see the complete data.
Gas firms frequently flip acreage or share expenses with other firms to raise money for costly lease acquisitions and drilling costs.
The Utica Shale acreage up for sale could easily have a price tag in the billions of dollars. Chesapeake has about $13 billion in debt and has said it wants to lower that amount to $9.5 billion.
The Utica Shale has attracted a frenzy of interest from drillers seeking refuge from low prices on the regular natural gas market. Ohio considers itself a few years behind Marcellus development, so any buyer of the Chesapeake land would be entering an arena still focused on signing leases and drilling exploratory wells.
Companies are required to file production reports with the Ohio Department of Natural Resources by March 31 with any data available from drilling in the previous year, so DNR officials said the Utica drilling boom won't be reflected in production reports until 2013 or 2014.
Nine Chesapeake wells took enough oil or gas to market to be included on the most recent production report. Some saw massive production: One well yielded 13,472 barrels of oil and 1.5 million Mcf of natural gas in less than 200 days. Another included on the report had been active only for five days when the information was filed.
In a statement last week, Chesapeake spokesman Pete Kenworthy said wellhead results reported to the Ohio Department of Natural Resources "continue to fuel our optimism for future production from the play."
The bullish attitude isn't fully supported by well data provided by Chesapeake, said analyst Mark Hanson of Morningstar in Chicago.
Mr. Hanson compared production numbers that Chesapeake provided last November on four horizontal Utica wells with updated data it provided in May when more wells had been drilled. The average amount of oil from each well dropped from 2,052 barrels per day to 1,325 when Chesapeake factored in the more recent data, Mr. Hanson wrote in a report titled "Peake-a-Boo: Chesapeake Surprises with Ugly Outlook."
To finance its drilling in the Utica, Chesapeake entered into a joint venture agreement in January with French oil firm Total S.A. worth $2 billion. If Chesapeake fails to meet obligations, the company will see reimbursement from Total S.A. drop from 60 percent to 45 percent for the wells on which it falls short.