Chesapeake Energy to sell midstream assets for $4 billion

June 08, 2012 | Mergers, Acquisitions & JVs

Chesapeake_energy_corp

Chesapeake Energy plans to sell its pipeline assets for $4 billion over three transactions, in the company’s latest push to generate cash.

To start, Chesapeake will sell its ownership stake in Chesapeake Midstream Partners to Global Infrastructure Partners, a private equity shop, for $2 billion in cash. The first half of the proceeds should come June 15, with a final closing and the remaining portion of the sale coming by June 29. Additionally, Chesapeake plans to sell certain mid-continent gather and processing assets to Chesapeake Midstream Partners.

Chesapeake will also sell its wholly owned subsidiary, Chesapeake Midstream Development, to GIP for another $2 billion.

“We have been working for the past few months to monetize our substantial and valuable midstream assets,” says CEO Aubrey McClendon.

The sales allow Chesapeake to cut capital expenditures by $3 billion over the next three years. The company is under pressure from shareholders to cut costs and reduce debt. After these sales, Chesapeake will have raised $6.6 billion this year.

Shares of Chesapeake fell 0.3% to $17.82. This announcement comes the same day as Chesapeake’s annual meeting, where the company will likely makeover its board.

Like many other natural gas companies, Chesapeake has suffered in recent years, amid the large drop in natural gas prices. In three years, the stock has fallen 25.4%. Others rivals haven’t sunk as far: Linn Energy went up 79.2%; EOG Resources gained 18.6% and Devon Energy lost 10.9%.

Chesapeake continues to face pressure from activist shareholder Carl Icahn, who has assumed a 7.6% stake in the company. Icahn wants Chesapeake to reduce expenses and adopt conservative spending. In the past year, Chesapeake share price declined 20.1%.

And questions remain about whether loans secured by CEO Clendon against his stake in company wells could have influenced the company’s business. Chesapeake has said the Securities and Exchange Commission is conducting an “informal inquiry” into the wells and whether they created an conflicts of interest.