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Chesapeake: Private Equity's Shale Real Estate Agent

Tickers in this article: CHK KKR

NEW YORK ( TheStreet) -- If there is one man synonymous with the shale land grab it has been Chesapeake Energy (CHK) CEO Aubrey McClendon, but Chesapeake has run into a problem recently (no, not the Rolling Stone article): It's running out of money to acquire shale acreage.

McClendon may have happened upon a solution: He's becoming private equity's shale real estate agent as private-equity players like Blackstone Group and KKR(KKR) become much more active in shale investment.

Blackstone recently invested in natural gas export play Cheniere Energy (LNG) , while KKR recently acquired oil and gas company Samson Investment .

Chesapeake and KKR announced on Tuesday a $250 million joint venture through which Chesapeake will source, own and manage shale assets that will provide future revenue royalty streams. KKR will provide $225 million of the $250 million in cash to buy up the royalty assets.

Details in a press release were scant, but with KKR putting in the lion's share of the money to buy up the shale acreage, it would stand to reason that KKR will receive a lion's share of the revenue from the assets.

That's why a cynic could argue that Chesapeake Energy, known by detractors as a shale asset "flipper," has now become private equity's shale real estate agent. As it is strapped for cash, Chesapeake now has to reduce its role to getting a finder's fee and management fee for going out and finding good shale investments for the deep-pocketed private-equity players.

In a way, it makes perfect sense. If there is one thing that has driven investors and Wall Street crazy about Chesapeake Energy, it has been McClendon's penchant for saying one thing -- becoming more financially disciplined -- while doing another like buying up assets and spreading the Chesapeake balance sheet even thinner. Yet if there is one thing that Chesapeake knows better than just about any other company it is how to source and operate shale assets.

Chesapeake has had to get a lot more serious in a hurry about showing its financial discipline to investors, especially with the recent slide in the price of natural gas crimping cash flow for the company and magnifying its funding gap.

If an investor wants to view this deal with KKR positively, it would be as a sign that Chesapeake won't continue to spend its own cash on acreage when it doesn't have the cash to spend. It also is one more way for McClendon to keep his company's position as second only to Exxon Mobil (XOM) in the shale without even having to lay out the cash to do so.

Details were few on the exact type of shale assets that the royalty trust will acquire, but if it allows Chesapeake to own bolt-on acquisitions in its key shale plays like the Utica and Eagle Ford and also in the Permian it would make sense for the company. Chesapeake can tie up the acreage that McClendon can't seem to resist without having to tie up his balance sheet in even more knots than already exist.

Chesapeake/KKR deal: A sign of the times for cash-strapped Chesapeake Energy.