--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 additional details throughout.)
By Kristin Jones
Chesapeake Energy Corp. (CHK) plans to sell pipelines and
related infrastructure in three separate transactions totaling more
than $4 billion in cash, as the embattled natural-gas company
struggles against mounting debt.
The natural-gas company said selling the midstream assets will
reduce previously budgeted capital expenses by around $3 billion
over the next three years. The deals will bring Chesapeake's
disclosed asset sales of the year to $6.6 billion, and the company
expects to meet its targeted range for 2012 asset sales.
Under pressure from shareholders, Chesapeake is expected to
replace more than half of its board with new directors, limiting
the power of Aubrey K. McClendon, the company's controversial
founder and chief executive. McClendon has led Chesapeake on a
massive expansion in recent years, as the company acquired drilling
rights to a territory three times the size of New Jersey and become
the nation's second-largest natural-gas producer. His appetite for
risk and corporate governance has come under attack in recent
weeks, and Chesapeake's largest shareholders have criticized the
company for spending billions of dollars more than it takes in from
natural-gas and oil sales.
Global Infrastructure Partners LLC has agreed to buy limited
partner units and general partner interests in Chesapeake Midstream
Partners L.P. (CHKM) for $2 billion. The acquisition will result in
Global Infrastructure Partners owning 69% of Chesapeake Midstream's
limited partner units and all of its general partner interest.
Global Infrastructure Partners is a private-equity fund 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.
Chesapeake expects to receive the first half of the proceeds on
June 15, and a final payment by June 29. The net book value for
these assets as of March 31 was around $1 billion, and the company
expects to report a pretax gain of roughly the same amount.
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.
The new ownership structure "enhances CHKM's ability to
executive on its low-risk business model and industry-leading
growth opportunities," said Chesapeake Midstream Partners' Chief
Executive J. Mike Stice.
Chesapeake also agreed to the potential sale of certain
mid-continent gathering and processing assets to Chesapeake
Midstream Partners. At the same time, it agreed to sell the
company's interests in its wholly-owned subsidiary Chesapeake
Midstream Development L.P. to Global Infrastructure Partners.
For these two transactions, Chesapeake expects total cash
proceeds of more than $2 billion. The net book value of the assets
was around $1.4 billion as of March 31. The agreement with Global
Infrastructure Partners includes a 45-day exclusive negotiation
period, with a possible 45-day extension.
Chesapeake Energy shares were up 5 cents to $17.90 in premarket
trading. Through Thursday's close, the stock was down nearly 20% so
far this year.
Chesapeake Midstream Partners shares were up 2.4% to $25.66 in
premarket trading. The stock was down 14% this year on the most
recent close.
Write to Kristin Jones at kristin.jones@dowjones.com