Chesapeake in $865M Marcellus Deal - Analyst Blog
December 29 2011 - 3:00AM
Zacks
Chesapeake Energy
Corporation (CHK) has inked a deal with a spun-off
subsidiary, Chesapeake Midstream Partners,
L.P. (CHKM) to sell its Appalachia Midstream Services,
L.L.C. (“AMS”) for $865 million.
The transaction, which is slated to
close on December 30, 2011, will see Chesapeake Midstream get hold
of about 47% interest in approximately 200 miles of pipelines and
other gas-gathering assets in Pennsylvania’s liquids rich Marcellus
Shale formation.
The to-be-sold properties are
operated by AMS under 15-year fixed fee gathering agreements with
leading Marcellus natural gas and liquids producers. These
agreements incorporate major acreage dedications and annual fee
redeterminations that aim for a mid-teens return on all invested
capital in the assets purchased.
Chesapeake Midstream will fund the
deal with $600 million in bank financing and the remaining $265
million by its common units. Upon completion, the deal will take
Chesapeake, the second-largest U.S.producer of natural gas behind
Exxon Mobil Corporation (XOM), closer to its
target of achieving debt reduction and clinch a projected funding
gap.
The acquisition of Pennsylvania
pipelines, which manages over a billion cubic feet of gas daily,
will make Chesapeake Midstream the industry’s leading gathering and
processing master limited partnership when measured by throughput
volume.
Chesapeake Energy along with
private investment fund Global Infrastructure Partners formed
Chesapeake Midstream, a master limited partnership (MLP), to
operate gas gathering systems and other midstream energy assets.
Chesapeake Midstream went public last year.
For Chesapeake Energy, this
divestiture will help it to reduce its long-term debt through
monetizing its assets and a reduction in lease-hold spending.
Oklahoma-based Chesapeake Energy holds a Zacks #3 Rank, which
translates into a Hold rating for a period of one to three months.
For the long term, we maintain a Neutral rating on the stock.
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