Chesapeake Trades Future Royalties on 8,500 Wells for Lump Sum Now

Haymaker Resources has just signed a deal with Chesapeake Energy to give Chessy $128 million in return for ownership of mineral and royalty interests in 8,500+ wells across 24 states and 324 counties, including wells in the Marcellus/Utica. The mineral/royalty interests Chesapeake is selling are considered “non-core” for the company. These are wells in which Chessy owns an interest, but they didn’t drill it and don’t manage it. They’re a partner in the well. What this deal means is that any royalties generated from those wells will now go to Haymaker instead of Chesapeake. Sort of like those deals we’ve highlighted in the past where a company pays a landowner a lump sum now and then receives all future royalty payments (see Company Targets OH Landowners – Buy Future Royalties for Cash Now). Think of it this way: You win the lottery, $1,000 a week for life. You’re 50 years old and think you’ll live another 30 years, at least. That would be $1.56 million total, IF you live that long. A company comes along and offers you $750,000, right now, in return for taking over the annuity of $1,000 per week (such companies do exist). That’s how we think of this deal. Chesapeake needs money now, to keep from going bankrupt, and they have these assets that bring in money, but in dribs and drabs and it’s not at the center of what they do. So they cash it in and get a chunk of money now instead of waiting for it later. Here’s the Haymaker announcement…

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