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Chesapeake Energy to sell Marcellus Shale midstream assets for $865 mln

Chesapeake Energy (NYSE:CHK) said Wednesday it will sell its Marcellus Shale midstream assets, including about 200 miles of gathering pipeline, to its affiliate, Chesapeake Midstream Partners LP (CMP) (NYSE:CHKM), for $865 million.

Under the terms of the agreement, CMP will pay $600 million in cash, drawn from its revolving credit facility, and will issue 9.8 million shares of its common stock, representing $265 million, to Chesapeake Energy.

The transaction will boost Chesapeake Energy's interest in CMP to 46.1 percent, from 42.3 percent.

CMP CEO, J. Mike Stice, said: "We are excited to expand out footprint into the Marcellus Shale, further increasing our basin diversification and, more importantly, exposing us to the increased drilling activity in the liquid-rich regions in the Marcellus South."

CMP will essentially acquire Appalachia Midstream Services, a wholly-owned subsidiary of Chesapeake Midstream Development, which is a subsidiary of Chesapeake Energy.

Upon completion of the transaction, CMP will own about 47 percent of the integrated system of assets, including the pipeline that covers much of the liquids-rich Marcellus South region.

Throughput at December 15 was just over one billion cubic feet per day, Chesapeake Energy said.

The midstream assets operate under 15-year fixed fee gathering agreements with large Marcellus natural gas and liquids producers. Annual fee re-determinations for the agreements target a mid-teens return on all invested capital, Chesapeake Energy said.

The company also said it has committed to generating at least $100 million in earnings before interest, taxes, depreciation and amortization (EBITDA) in 2012, and at least $150 million in EBITDA in 2013 from the Marcellus assets, for the benefit of CMP.

Chesapeake Energy CEO, Aubrey K. McClendon, added: "We are pleased to announce our second gathering asset sale to CMP.

"Combined with our Springridge Haynesville asset sale of $500 million in December 2010, we have now dropped down gathering assets of approximately $1.4 billion in CMP.

"Combined with the $1.2 billion Barnet, Permian and Mid-Continent gathering assets contributed to the formation of CMP's predecessor in September 2009, Chesapeake has successfully monetized $2.6 billion of its extensive midstream asset portfolio at a more attractive valuation than if these assets had stayed on Chesapeake's balance sheet.

"We look forward to continuing to build Chesapeake's midstream systems in the Haynesville, Eagle Ford, Greater Anadarko (including the Cleveland, Tonkawa and Mississippian), Niobrara and Utica plays, all of which will be available to CMP for future drop downs."

The acquisition has been unanimously approved by the boards of both companies, and is expected to close by year-end.

In New York, CMP shares rose 3.43 percent to $28.05 on Thursday morning, while Chesapeake Energy shares hiked 0.13 percent to $22.69, as of 9:59 am ET.