Chesapeake in $865M Marcellus Deal - Analyst Blog

Chesapeake Energy Corporation ( CHK ) has inked a deal with a spun-off subsidiary, ChesapeakeMidstream Partners, L.P. ( CHKM ) to sell its Appalachia Midstream Services, L.L.C. ("AMS") for $865 million.

The transaction, which is slated to close on December 30, 2011, will see Chesapeake Midstream get hold of about 47% interest in approximately 200 miles of pipelines and other gas-gathering assets in Pennsylvania's liquids rich Marcellus Shale formation.

The to-be-sold properties are operated by AMS under 15-year fixed fee gathering agreements with leading Marcellus natural gas and liquids producers. These agreements incorporate major acreage dedications and annual fee redeterminations that aim for a mid-teens return on all invested capital in the assets purchased.

Chesapeake Midstream will fund the deal with $600 million in bank financing and the remaining $265 million by its common units. Upon completion, the deal will take Chesapeake, the second-largest U.S.producer of natural gas behind Exxon Mobil Corporation ( XOM ), closer to its target of achieving debt reduction and clinch a projected funding gap.

The acquisition of Pennsylvania pipelines, which manages over a billion cubic feet of gas daily, will make Chesapeake Midstream the industry's leading gathering and processing master limited partnership when measured by throughput volume.

Chesapeake Energy along with private investment fund Global Infrastructure Partners formed Chesapeake Midstream, a master limited partnership ( MLP ), to operate gas gathering systems and other midstream energy assets. Chesapeake Midstream went public last year.

For Chesapeake Energy, this divestiture will help it to reduce its long-term debt through monetizing its assets and a reduction in lease-hold spending. Oklahoma-based Chesapeake Energy holds a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the stock.

CHESAPEAKE ENGY ( CHK ): Free Stock Analysis Report

CHESAPEAKE MIDS ( CHKM ): Free Stock Analysis Report

EXXON MOBIL CRP ( XOM ): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos


    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at

    Learn More