A Fire Sale on Natural Gas Fields

What on earth could prompt an oil patch player to voluntarily hand off an interest in a valuable gas property, gratis?

Last week, Parallel Petroleum did just that, in agreeing to transfer half of its 35% interest in a Texas natural gas field to Chesapeake Energy

Chesapeake owns the majority interest in the field and calls the shots when it comes to the drilling decisions. Parallel participates by footing its proper share of the costs.

In other words, the small company doesn’t control its own destiny with regards to the timing of capital spending, at least in this particular play. In today’s environment, that’s a tenuous situation. Parallel has thus chosen to dilute its interest in the field to get out from under a potentially crippling cash outlay in the upcoming year.

For this to be called a fire sale, I think there would have to be some number on the price tag. This is more like a game of duck, duck drill costs.

We’ve already seen drilling commitments sink one offshore explorer. In that case, the company was on the hook with contractors Transocean and Diamond Offshore. This latest move by Parallel shows that onshore players are overstretched as well.

Motley Fool