Chesapeake Energy Corp. is in advanced negotiations to sell all of its midstream assets, including its stake in Chesapeake Midstream Partners LP (CHKM), for more than $4 billion, a transaction that could be completed in the next few days, sources told NGI’s Shale Daily on Wednesday. The bidder is said to be private equity giant Global Infrastructure Partners (GIP), which initially helped to fund the master limited partnership (MLP) and which continues to be a joint partner.

The news, still unconfirmed late Wednesday by company officials, sent Chesapeake’s stock price jumping to end the day up 7% ($1.19) to $18.19 from $17.00 at the open. More than 43 million shares traded hands, versus average volume of 31 million shares.

Persons close to the negotiations told NGI’s Shale Daily that GIP, which has its hands in several big U.S. energy enterprises, sees the value in CHKM because of its investment in the entity since it was formed in 2009 in a 50-50 partnership with Chesapeake (see Shale Daily, Dec. 20, 2010). Two of CHKM’s directors, Matthew C. Harris and William A. Woodburn, are GIP partners.

When CHKM was launched through an initial public offering in mid-2010, Chesapeake contributed most of its midstream assets in the Barnett Shale and properties in the Arkoma, Anadarko, Delaware and Permian basins. By the end of 2011 CHKM held more than $3 billion of Chesapeake’s midstream properties (see Shale Daily, Jan. 3).

CHKM now owns and operates assets across seven states, with more than 3,900 miles of pipelines and 3.8 million dedicated acres in the Midcontinent, as well as the Barnett, Haynesville and Marcellus shales. Over the next 10 years CHKM expects to take $500 million a year worth of Chesapeake’s midstream properties still in house, which include properties in the Eagle Ford and Utica shales, as well as the Granite Wash, Cleveland/Tonkawa, Mississippi Lime and Niobrara formations (see Shale Daily, March 16).

SunTrust Robinson Humphrey’s Neal Dingmann, the managing director of exploration and production research, told NGI’s Shale Daily on Wednesday that based on the valuations batted about in the market of a $4 billion deal the bidder likely would be buying all of Chesapeake’s midstream assets, not just the MLP.

“I believe given the cash crunch that Chesapeake finds itself in, selling lowering returning midstream assets makes sense,” said Dingmann. “In addition, given the influx of midstream companies, it appears that procuring midstream services going forward should be easier. The market is telling us that Chesapeake’s 46% of CHKM is worth about $1.9 billion and I estimate Chesapeake’s other midstream assets are worth about the same so I would value the total around $3.5-4 billion.”

Whether selling the partnership makes sense to help Chesapeake’s struggling bottom line remains a question. Since GIP owns about half of CHKM, Chesapeake would net about half of the proceeds — and it needs to sell “at least” $7 billion worth of assets this year to avoid a breach of debt covenant and a credit downgrade, a Moody’s Investors Service senior analyst said in May (see Shale Daily, June 1).

Tudor, Pickering, Holt & Co. Inc. (TPH) analysts said the rumors to sell the unit for $4 billion-plus are “inline with our assumption of $4.5 billion for the total asset base but it would be ahead of our initial expectation of midstream monetization for 2012 of $2.5 billion (bringing forward sales we expected in 2013).

“Overall, it’s a positive for Chesapeake if the deal gets done as it would give management additional flexibility for asset sales in 2012,” said the TPH team.

Raymond James & Associates Inc. analyst Paul Raymond said it might be in Chesapeake’s best interests to keep the midstream business. As an MLP, he noted, CHKM pays most of its cash flow, minus capital spending, to unitholders every quarter — a fact pointed out by Standard & Poor’s Credit Ratings Service in a report in May.

Although CHKM up to now has received most of its revenue from Chesapeake, partnership CEO Mike Stice pointed out that the business operates independently from Chesapeake. The partnership, he noted, also is attempting to reduce the amount of revenue it receives from Chesapeake to about 50%, and transactions between the two entities are subject to review by a committee of independent directors.