--Chesapeake Energy will sell pipelines and infrastructure for
$4 billion in cash
--The divestitures are expected to reduce capital expenses by $3
billion over the next three years
--The company has come under fire for mounting debt and
corporate governance issues
(Updates with details, analyst comments in 10th ad 12th
paragraphs)
By Kristin Jones and Ben Lefebvre
Chesapeake Energy Corp. (CHK) plans to sell midstream assets
totaling more than $4 billion in cash, as the embattled natural-gas
company struggles against mounting debt.
The sale of the pipeline and gathering assets to private-equity
fund Global Infrastructure Partners will help Chesapeake as it
strives to bring its debt level down to $9.5 billion by year-end
and make up for a $10 billion cash shortfall. Chesapeake Energy
posted long-term debt of $13.1 billion in the first quarter after
going on a asset-buying spree and having its cash-flow eroded by
plummeting natural gas prices.
Chesapeake said it will receive $2 billion by the end of June
for the sale of certain mid-continent gathering and processing
assets of Chesapeake Midstream Partners L.P.(CHKM). At the same
time, Chesapeake Energy agreed to sell the company's interests in
its wholly owned subsidiary Chesapeake Midstream Development L.P.
for a possible additional $2 billion.
The net book value of the assets was around $1.4 billion as of
March 31, Chesapeake Energy said. The agreement with Global
Infrastructure Partners includes a 45-day exclusive negotiation
period, with a possible 45-day extension.
Global Infrastructure Partners is led by Credit Suisse Group AG
(CS) and General Electric Co. (GE). It partnered with Chesapeake
Energy to form Chesapeake Midstream Partners, an entity that went
public in 2010 and operates gas-gathering and processing systems in
the Marcellus Shale, Barnett Shale and other U.S. locations.
"These transactions will preserve the strategic relationships we
have with [Chesapeake Midstream Partners] and [Chesapeake Midstream
Development] as our primary midstream service providers and further
strengthen the close relationship we have enjoyed with [Global
Infrastructure Partners] since 2009," Chesapeake Energy Chief
Executive and co-founder Aubrey McClendon said.
The overall sales will reduce Chesapeake Energy's capital
expenditures budget by approximately $3.0 billion over the next
three years, the company said.
Friday's deals will bring Chesapeake's disclosed asset sales so
far this year to $6.6 billion. Mr. McClendon said the company
expects to meet its targeted range for 2012 asset sales. The
company sold $2.6 billion in assets in April and is trying to sell
additional land worth an estimated $15 billion.
The latest sale, assuming it closes, should shore up
Chesapeake's balance book by up to $6 million over the next two
years after taxes, said Argus Research analyst Phil Weiss.
"It's progress, but there's still a way to go," Mr. Weiss
said.
Although the asset sales bring Chesapeake Energy closer to
cleaning up its balance sheet, jettisoning its pipelines could
bring some marginal downside.
"We suspect transport costs could increase on the margin with
these assets in the hands of a third party," energy analyst firm
Simmons & Co. said in a note to investors.
Chesapeake made the sale announcement as investors gather in
Oklahoma City to attend the company's annual shareholders
meeting.
Chesapeake's heavy debt load, falling revenue and complicated
financial structure have caused an outcry from shareholders. Mr.
McClendon has also faced sharp criticism after media revelations
detailing personal loans he received from firms doing business with
Chesapeake, dealings critics say represent a conflict of
interest.
Under pressure from shareholders, Chesapeake is expected to
replace more than half of its board with new directors, limiting
the power of Mr. McClendon.
The acquisitions will result in Global Infrastructure Partners
owning 69% of Chesapeake Midstream's limited partner units and all
of its general partner interest.
In connection with the deal, Chesapeake Midstream Partners is
projecting 2013 full-year earnings before interest, taxes,
depreciation and amortization of $550 million to $575 million. It
expects $550 million to $600 million in expansion capital
expenditures, and around $74 million in maintenance capital
expenditures.
Chesapeake Energy shares were flat in morning trading, at
$17.84. The stock is down 20% so far this year.
Write to Ben Lefebvre at ben.lefebvre@dowjones.com