Natural gas pipeline giant Williams has resolved commitments with Chesapeake Energy Corp., one of its biggest customers, which bolster “essential” project growth and marketing capabilities.
The Tulsa-based pipeliner on Monday reached a global resolution to continue to treat and move Chesapeake’s natural gas in the Lower 48.
Chesapeake filed for Chapter 11 bankruptcy protection in June to wipe out $7 billion of debt. As part of the auction process, Chesapeake last week sold its Oklahoma assets to Tapstone Energy LLC for $130.5 million.
Reaching a gas gathering agreement with Williams allows Chesapeake to continue to have a reliable outlet for its natural gas production from the Eagle Ford, Haynesville and Marcellus shales, as well as the Midcontinent.
“Williams has strategically invested in large-scale and essential infrastructure necessary to gather and treat the natural gas that Chesapeake and its joint interest owners produce in the Eagle Ford, Haynesville, and Marcellus,” said Williams CEO Alan Armstrong. “Our gathering systems are necessary to realize the full potential of these high value reserves, and we are pleased to have been able to work with Chesapeake toward a mutually beneficial outcome that will put Chesapeake on a clear path to a bright future.
“Chesapeake is a valuable customer, and this transaction will both strengthen Chesapeake and allow Williams to enhance the value of our significant midstream infrastructure by bringing adequate capitalization to these low-cost gas reserves.”
Per the existing contracts, the Oklahoma City independent agreed to pay all pre-petition and past due receivables related to midstream expenses.
Chesapeake also agreed to not attempt to reject gathering agreements in the Eagle Ford, Marcellus or Midcontinent.
For the Haynesville, Williams plans to reduce its gathering fees in exchange for gaining ownership of a portion of Chesapeake’s South Mansfield producing assets. The assets include 50,000 net mineral acres.
In the Haynesville agreement, Chesapeake plans to enter into a long-term gas supply commitment on Williams’ Transcontinental Gas Pipe Line, aka Transco. The agreement would require Chesapeake to provide a minimum 100,000 Dth/d and up to 150,000 Dth/d on the Transco Regional Energy Access (REA) pipeline currently under development.
The reduced gathering fees on REA are consistent with incentive rates that Williams has offered previously to attract drilling capital and “are therefore expected to promote additional drilling across Chesapeake’s prolific Haynesville footprint,” Williams management said.
Chesapeake acquired some of the Louisiana assets in South Mansfield 10 years ago.
“The South Mansfield assets provide an opportunity for Williams to transition the acreage to a strong and well capitalized operator that will grow production volumes, and drive growth in fee-based cash flows on Williams’ existing spare midstream capacity, while also enabling Williams to market significant gas volumes for future downstream opportunities.”
The REA commitment also would provide “valuable incremental takeaway capacity for Chesapeake’s Marcellus production and the associated Williams gathering systems, while adding a valuable capacity commitment to the Transco project.”
Analysts with Tudor, Pickering, Holt & Co. said the agreement was a “positive conclusion” to the ongoing bankruptcy proceedings. The South Mansfield assets could be monetized by Williams “in short order,” they said.
“We see the announcement as a modest positive, with Williams able to effectively clear the Chesapeake bankruptcy overhang while also bolstering growth project commitments and future Haynesville marketing capabilities.”
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