Chesapeake Energy Corp. (NYSE: CHK) said Oct. 16 it has agreed to sell southern Marcellus Shale assets and a portion of the eastern Utica Shale in West Virginia to Southwestern Energy Co. (NYSE: SWN) for $5.375 billion.

Chesapeake parts with 413,000 net acres and about 1,500 wells—435 in the Marcellus and Utica formations in Northern West Virginia and Southern Pennsylvania—related property, plant and equipment are included.

Southwestern said the wells include 256 operated and producing Marcellus and Utica horizontal wells and an additional 179 nonoperated or nonproducing Marcellus and Utica horizontal wells.

The assets target the Upper Devonian, Marcellus and Utica shales and are just east of Magnum Hunter Resources' (NYSE: MHR) position in northwestern West Virginia and southeastern Ohio, said Gabriele Sorbara, analyst, Topeka Capital Markets.

The properties’ average net daily production is about 56,000 barrels of oil equivalent (boe) during September, consisting of 184,000 thousand cubic feet of gas (Mcf), 20,000 barrels of NGL and 5,000 barrels (bbl) of condensate.

As of Dec. 31, 2013, net proved reserves associated with these properties were about 221 MMboe.

“CHK was not directing much capital towards these properties, and thus we do not expect any change to the FY15 capital program,” said David Tameron, senior analyst, Wells Fargo Securities. “The properties were not contributing to the company's production growth, so there is no change to the previously-stated 7-10% 2015 growth rate.”

Tameron added that some proceeds may go toward paying down debt, “but at this time management is keeping quiet on other potential uses. We'd note that having some dry powder in this weak commodity/equity environment could create some interesting opportunities.”

Prior to the Oct. 16 deal, Chesapeake had sold E&P assets for roughly $1.4 billion this year.

With the acquisition, Southwestern will have secured a complementary third premier acreage position, said Steve Mueller, president and CEO of Southwestern.

"Southwestern already has leading positions in two world class projects in our Fayetteville Shale and northeastern Pennsylvania Marcellus assets, and both will continue delivering highly economic production and reserve growth for many years,” he said.

Early drilling in both the liquids-rich Marcellus and emerging Utica plays has confirmed the resource potential and the economic strength of a long-term development program, Mueller said. “This transaction fits perfectly with Southwestern's vertical integration strategy and, through our operational strengths and core competencies we expect to drive exceptional future value from these assets."

As part of the deal, Southwestern assumes a portion of Chesapeake's firm transportation and processing capacity commitments. Based on that capacity and expected future commitments Southwestern's preliminary plan is to begin with four to six rigs in 2015 and increase to 11 rigs by 2017.

The company estimates it can drill for a minimum of 20 years at an 11-rig pace. By the end of 2017, the reserve mix for the company is estimated to be about one third each for the Fayetteville, northeast Marcellus and the newly acquired West Virginia and Pennsylvania properties compared to the roughly two-thirds for the Fayetteville and one third northeast Marcellus currently.

Doug Lawler, Chesapeake CEO, said the deal is a major step in the company’s transformation and a dramatic improvement in its financial strength.

“Earlier this year, we committed to unlocking the significant value inherent in this asset, recognizing the disconnect of its perceived value within our portfolio,” Lawler said.

Importantly, Lawler said, the transaction will have no impact on CHK’s expected growth profile or on “our views around maintaining a disciplined capital program.”

Lawler said he expects full-year production guidance for 2015 to remain in the range of 7-10% growth compared to 2014, adjusted for asset sales.

The transaction, which is subject to certain customary closing conditions, including the receipt of third-party consents, is expected to close in the fourth quarter of 2014.