Rumors flew in the oil patch this week that British oil giant BP plc would scoop up Oklahoma City oil explorer Chesapeake Energy Corp.
Chesapeake's shares shot up 8.2% on Wednesday, or $1.88, to close at $24.83 but were slammed down $2.30 to $22.53 per share Thursday in the general market downdraft. It traded as high as $74 per share over the last year.
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Some analysts think that such a takeover would be a challenge given market conditions, requiring a lot of cash. But that's something BP has a lot of, and it could take away some of the risk by pairing a cash payment with stock, which would also benefit Chesapeake shareholders.
The two companies have already been dealing. In August Chesapeake agreed to sell 90,000 acres of natural gas properties in Oklahoma to BP for $1.75 billion in cash. A month later, it agreed to sell one-quarter of a natural gas-producing venture in Arkansas' Fayetteville Shale to BP for $1.9 billion. It's still looking for a partner to help develop its Marcellus properties.
Ray Deacon, senior analyst at Pritchard Capital Partners, thinks a foreign partner is likely for the properties, probably BP.
"There are a lot of shale plays internationally, but the prices for properties are triple what they are in the U.S.," he said. "They're looking for knowledge transfer opportunities."
So BP, in the end, may just be looking for another piece of Chesapeake.
- Claire Poole
