Confirming media speculation earlier in the week, Chesapeake Energy Corp. (CHK: Quote) said Friday it will sell its midstream assets in three separate transactions for more than $4 billion in cash.
The deal will enable the oil and natural gas producer to reduce previously budgeted capital expenditures by about $3 billion over the next three years.
Chesapeake will sell all of its limited partner units and general partner interests in Chesapeake Midstream Partners, L.P. (CHKM: Quote) to Global Infrastructure Partners or GIP for $2 billion in cash.
Chesapeake expects to receive the first half of the proceeds from GIP on June 15, with a final closing and payment of the remaining proceeds by June 29. Chesapeake anticipates a pretax gain of about $1 billion on the sale.
GIP is a private equity fund founded by Credit Suisse (CS) and General Electric (GE).
Chesapeake Midstream or CHKM was formed in 2009 as a joint venture between Chesapeake and GIP. It later went public in 2010. CHKM has 4,000 miles of pipelines and is one of the largest natural-gas gatherers and processors in the U.S.
In addition, Chesapeake entered into letter agreements for the potential sale of certain Mid-Continent midstream assets to CHKM, and for the sale of Chesapeake Midstream Development, L.P. or CMD to GIP. Chesapeake expects cash proceeds of more than $2 billion from these two transactions.
The GIP letter agreement includes a 45-day exclusive negotiation period and a 45-day extension period if a purchase price has been agreed to and progress is being made toward closing.
Chesapeake, the second-largest U.S. natural gas producer, has been pressured by U.S. natural gas prices, which have been at its lowest in the past decade.
Chesapeake's largest shareholders, Southeastern Asset Management, Inc. and Carl Icahn, have been pushing the company for shedding its pipeline assets and other non-core business in order to focus on its core oil and gas drilling assets.
Earlier in the week, the two biggest shareholders managed to force Chesapeake to replace nearly half of its board to improve governance at the company, which has seen a sharp erosion in share value. Chesapeake is slated to hold its annual shareholders meeting later today.
Chesapeake said the proceeds of the three transactions are part of its 2012 asset sales program that is on track to generate cash proceeds of $11.5 billion to $14 billion.
Combined with proceeds of $2.6 billion generated to date in 2012 from asset sales, the three midstream transactions will bring the company's announced asset sales for the year up to about $6.6 billion.
Moody's Investors Service has said Chesapeake requires to raise at least $7 billion by selling its assets by the end of the year to avoid a credit downgrade.
Separately, CHKM affirmed its EBITDA guidance for the twelve months ended December 31, 2012 of $475 million. For the twelve months ending December 31, 2013, CHKM projects organic EBITDA of $550 million to $575 million.
CHK closed Thursday's trading at $17.85. In Friday's pre-market, the stock is adding $0.09 or 0.50 percent to $17.94.
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by RTT Staff Writer
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