Global Infrastructure Partners (GIP), which backed Chesapeake Energy Corp. as it launched its midstream business three years ago, on Friday agreed to buy all of the assets for more than $4 billion cash in a sale that had been rumored for days (see Daily GPI, June 7). Chesapeake would net about $2.4 billion from the sale and cut previously budgeted midstream capital spending over the next three years by $3 billion.
The announcement came just hours before the company’s annual meeting in Oklahoma City (see related story).
In the first transaction Chesapeake agreed to sell its limited partner and general partner units in Chesapeake Midstream Partners LP (CHKM) to GIP for $2 billion in cash. GIP helped finance and then took a stake in CHKM when it was publicly launched in 2010 (see Daily GPI, July 7, 2010; Sept. 28, 2009). The first half of the proceeds are expected on June 15, with a final closing and payment by June 29. Chesapeake said its net book value for the properties at the end of March was about $1 billion and it expects to report the same amount as a pretax gain on the sale.
The Oklahoma City-based operator also entered into a letter agreement to sell CHKM some Midcontinent gathering and processing assets through subsidiary Chesapeake Midstream Development LP (CMD), which in turn would be sold to GIP for more than $2 billion. Chesapeake’s net book value for these assets at the end of March was about $1.4 billion. The GIP letter agreement includes a 45-day exclusive negotiation period and a 45-day extension period if a purchase price has been agreed to and progress is being made toward closing.
“We have been working for the past few months to monetize our substantial and valuable midstream assets,” said CEO Aubrey McClendon. “These transactions will preserve the strategic relationships we have with CHKM and CMD as our primary midstream service providers and further strengthen the close relationship we have enjoyed with GIP since 2009.
“The proceeds of these transactions are an important part of our 2012 asset sales program that is on track to generate cash proceeds of $11.5-14.0 billion. Combined with the $2.6 billion of proceeds generated to date in 2012 from asset sales, this series of midstream transactions will bring our announced asset sales for the year up to approximately $6.6 billion.”
The announced Permian Basin sale, expected to fetch up to $8 billion, as well as a joint venture in the Mississippian Lime and other “miscellaneous asset sales still to come in the second half of the year” should enable Chesapeake to hit its targeted 2012 asset sales, said McClendon. “Importantly, the sale of CMD will also reduce previously planned capital expenditures by approximately $3 billion over the next three years.”
On Thursday Chesapeake also put up for sale 450,000 net acres in Northern Michigan, a leasehold that overlies two emerging resource plays, the Silurian A-1 Carbonate and the Ordovician Collingwood Shale. Both of the formations “offer the potential for wet gas production, with the strong possibility of oil and condensate production,” Chesapeake said. The leasehold crosses 20 counties.
“Chesapeake has altered its plans to develop all of its highly prospective unconventional acreage and instead will be focusing in other plays where it has amassed a more significant land position,” management stated as the rationale for selling. The bid date is June 29, with closing set for July 27.
The Michigan package is the third set of assets that Chesapeake has put up for sale in the past two weeks (see Daily GPI, June 1; May 29).
Â©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2022 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |