Chesapeake Offloads CHKM Stakes - Analyst Blog

Natural gas giant Chesapeake Energy Corporation (CHK) has wrapped up its asset sale deal with private equity firm Global Infrastructure Partners (”GIP"). Under the deal, Chesapeake sold its pipeline properties for a total cash consideration of $2 billion.

Last month, Chesapeake, the second largest natural gas producer in the U.S., proposed to sell its interests in Chesapeake Midstream Partners LP (CHKM) to GIP, as part of the three-tier asset sale pact. The closure of the asset sale deal allows GIP to own all of the general partner interests and 69% of the limited partner units of Chesapeake Midstream.

Chesapeake is also in the process of disposing certain Mid-Continent gathering and processing assets to Chesapeake Midstream Partners. Again, in the other tranche of the pact, the Oklahoma City-based company will sell its stakes in a subsidiary – Chesapeake Midstream Development LP – for an extra $2 billion to GIP. Importantly, the total divestiture will allow Chesapeake to shed its earlier announced capital expenditure by $3 billion over the next three years.

The company sold Chesapeake Midstream properties comprising pipeline networks in Texas, Louisiana, Pennsylvania and other gas-producing states. As of March 31, 2012, it had 3,953 miles of pipeline. About 75% of the partnership’s revenue is generated from Chesapeake Energy, while the balance comes from Total SA (TOT) and Statoil ASA (STO).

Of late, Chesapeake has been in the news as it is under pressure to fund its capital budget amid diminishing cash flows on the back of falling natural gas prices. The company intends to offload as much as $11.5 billion to $14.0 billion worth of assets this year in order to bridge the funding gap of $9 billion to $10 billion.

Chesapeake holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. We maintain our long-term Neutral recommendation for the company.

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