Chesapeake Energy Corp. has agreed to sell most of its remaining midstream assets for $2.16 billion to its former pipeline subsidiary in a deal that will be partially bankrolled by Tulsa-based Williams Cos. Inc.
Chesapeake is selling natural gas pipeline, compression and storage facilities in several major shale plays to Access Midstream Partners, while Williams will pay about $2.4 billion to buy a stake in Access and its general partner.
Williams CEO Alan Armstrong said the deal is a strategic investment meant to create long-term value for the company and its shareholders.
“With ACMP's planned acquisition of most of Chesapeake's remaining midstream business, our investment also provides us with an interest in assets in some of the best acreage positions in prolific and economically durable shale plays,” Armstrong said. “As well, Oklahoma-based Chesapeake leads ACMP's diverse customer base of U.S. and international integrated majors and large independent producers.”
Chesapeake's continuing asset sales will push to company closer to its goal of raising $14 billion this year to offset a looming cash crunch. The company also plans to raise up to $19 billion next year.
“We are pleased to announce further progress toward our asset sale goals for 2012-2013,” Chesapeake CEO Aubrey McClendon said. “We look forward to completing additional asset sales and achieving our goals of strengthening our balance sheet, tightening our asset focus and increasing returns to shareholders.”
Chesapeake also said Tuesday it has recently completed the sale of other midstream assets in Oklahoma and Texas during the fourth quarter for about $175 million.
The company expects to complete the sale of its remaining midstream assets by the end of the first quarter of 2013 for about $425 million. Proceeds are expected to total $4.875 billion. In September, Chesapeake said it expected to receive about $5 billion for the total sale.
Chesapeake has been under intense pressure from creditors and shareholders to reduce debt as it shifts its focus to oil from natural gas.
Chesapeake has now announced about $11.1 billion in assets to close this year and another $425 million to close in the first quarter of 2013. Tuesday's deal moves the company closer to its goal of selling $14 billion in 2012 and a total of $17 billion to $19 billion by the end of 2013.
Analyst Philip Weiss said the sale improves the company's financial position, but that more work is needed.
“Chesapeake needs to complete these sales and others,” said Weiss, an analyst with Argus Research Group in New York.
“Otherwise it will have to cut its capex (capital expenditure) budget. It could also potentially face a liquidity event. Completion of midstream sales is something the market is looking for, so this is a plus. But there's still more to go.”
Access Midstream executives said the deal will give the Oklahoma City midstream company “well-established footprints in virtually all of the major unconventional basins in the United States.”
“The acquisition of these midstream assets is a transformational opportunity for Access,” CEO Mike Stice said. “The extension of our services into gas processing, fractionation and NGL (natural gas liquids) pipelines will enhance our ability to grow and deliver additional value to our unit holders going forward.”