Chesapeake Midstream Partners LP has agreed to acquire the Spring Ridge gas gathering system and related facilities in the Haynesville Shale from Chesapeake Midstream Development LP, a subsidiary of Chesapeake Energy Corp. (Chesapeake), for $500 million cash.
The deal is the first dropdown transaction for the master limited partnership (MLP) since its initial public offering about six months ago (see Daily GPI, July 7).
The partnership will acquire Chesapeake's 100% stake in the Spring Ridge system, which consists of 220 miles of gathering pipeline in Caddo and De Soto parishes, LA. Average throughput on the system during the third quarter was about 400 MMcf/d, with "significant" future exposure to third-party volume. The acquisition provides the partnership with access to the Haynesville Shale.
"We expect the acquisition to be immediately accretive to distributable cash flow and believe these assets, located in one of the premier cost-advantaged unconventional plays, have significant potential for organic growth," said J. Mike Stice, Chesapeake Midstream Partners CEO.
During a conference call Friday with financial analysts, Stice said the assets are in the "core of the core" of the Spring Ridge area. He likened Chesapeake's footprint in the Haynesville play to the significant position it has in the Barnett Shale. Chesapeake Midstream's activities are now focused on Oklahoma, Texas and Louisiana.
Stice told the analysts they can look forward to more dropdowns to the MLP from Chesapeake. Assets in the Fayetteville, Marcellus and Eagle Ford shales are all candidates, as well as more assets in the Haynesville, he said.
At closing, the partnership will simultaneously enter into a 10-year, 100% fixed-fee gathering agreement with Chesapeake, which includes a "significant" acreage dedication, annual fee redetermination and a minimum volume commitment. "The combination of basin diversification, increased footprint, access to third-party volumes, low-risk contractual terms and anticipated growth prospects makes the acquisition an attractive addition to the partnership's portfolio," Chesapeake said.
The acquisition will be financed with a draw on the partnership's revolving credit facility of approximately $250 million plus $250 million of cash on hand. Following the transaction, the partnership will have approximately $500 million of additional borrowing capacity on its credit facility. The deal is expected to close by the end of the year.