Chesapeake Sells Pipelines To Subsidiary For $500 Million
December 16 2010 - 6:16PM
Dow Jones News
Chesapeake Energy Corp. (CHK) will sell 220 miles of its
Louisiana pipelines to subsidiary Chesapeake Midstream Partners LP
(CHKM) for $500 million, the companies said on Thursday.
The deal allows Chesapeake Energy Corp., the second largest
natural gas producer in the U.S., to shed the pipelines along with
any debt that may be tied to them while still retaining a degree of
control over the assets as the lead, or general, partner in
Chesapeake Midstream. Chesapeake Midstream, meanwhile, can expand
the pipelines by tapping into equities markets and not its parent
company's balance sheet.
Oklahoma City-based Chesapeake Energy spun off several gas
distribution assets earlier this year as the master limited
partnership, but still owns nearly 35% of Chesapeake Midstream's
shares, according to FactSet Research.
Master limited partnerships such as Chesapeake Midstream pay out
profits to investors each quarter and Chief Executive J. Mike Stice
said that Thursday's asset "drop-down" should immediately generate
cash for those disbursements.
Located in Caddo and De Soto parishes in western Louisiana, the
pipelines distribute natural gas culled from the Haynesville shale
formation.
Chesapeake Energy has 525,000 acres in the Haynesville formation
and believes its reserves there could exceed the equivalent of
30,000 billion cubic feet of natural gas. Chesapeake said it
produces around the equivalent of 785 million cubic feet there each
day.
The company's pipelines there carried about 400 million cubic
feet per day during the third quarter.
Along with the sale, Chesapeake Energy has agreed to send a
certain volume of gas through the pipelines at a fixed fee for 10
years.
Terms of the transaction were approved by a panel of independent
directors, which enlisted outside financial and legal advisors, the
companies said.
Shares of Chesapeake Energy closed up 6 cents, or 0.3%, at
$23.57 on Thursday. Chesapeake Midstream shares closed down 5
cents, or 0.2%, at $26.93.
-By Ryan Dezember, Dow Jones Newswires; 713-547-9208;
ryan.dezember@dowjones.com
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