Chesapeake Energy to Sell a Pipeline Unit for $865 Million
Chesapeake Energy, the second-largest producer of natural gas in North Texas' Barnett Shale, has plans of selling off one of its pipeline units, Appalachia Midstream Services, L.L.C., to Chesapeake Midstream Partners LP. Chesapeake Midstream Partners LP is the entirely owned Chesapeake Midstream Development, L.P. subsidiary of that holds its Marcellus Shale midstream assets.
Energy companies usually favor the corporate structures of Master Limited Partnerships are corporate structures. Now what happens is that these partnerships make their investors more capital efficient than any other structure by paying nearly no taxes and outdoing almost all profits along to investors.
Chesapeake Energy has been an aggressive buyer of land to drill in North America and faces a shortfall with its financial support next year and has been striking deals to close the gap.
The Acquisition
The $864 million acquisition is expected to close by 30th of this month. Chesapeake Energy will be financed by $600 million of cash drawn from Chesapeake Midstream Partners LP's rotating credit facility and equity consideration of $265 million (9.8 million Chesapeake Midstream Partners LP. common units), which would further increase Chesapeake's limited partnership ownership of Chesapeake Midstream Partners LP. from 42.3% to 46.1%. On December 20, 2011, Chesapeake Midstream Partners LP. completed an amendment of its credit facility for increasing the total borrowing capacity to $1.0 billion.
J. Mike Stice, Chief Executive Officer of Chesapeake Midstream said, "The partnership expects to pursue a substantial number of asset dropdowns from Chesapeake in the years ahead."
Chesapeake Energy and private investment fund Global Infrastructure Partners collectively formed the Chesapeake Midstream in order to operate gas gathering systems and other midstream energy assets.
Neither Chesapeake Energy nor Chesapeake Midstream stock was moving hours after Chesapeake Energy closed down 86 cents at $22.66 while Chesapeake Midstream closed up 29 cents at $27.12. The latest deal comes a little more than a year after Chesapeake Midstream Partners acquired Louisiana pipelines for $500 million from a Chesapeake Energy subsidiary.
Prospective Future of Chesapeake Energy
It is expected that the new expansion project will add 70 miles of new pipelines to the Texas Eastern pipeline system and raise its capacity by 18 percent. The extra capacity of 1 billion cubic feet per day will enable Chesapeake to efficiently transport the natural gas from the shale deposits in Utica to consumers in the region.
November 20114 will see the operation of new pipelines and American Electric will make use of it to fuel its power plants. The companies expect other plants to eventually begin using the pipeline too.
The cost effectiveness and environment friendliness of natural gas is posing potential demand in consumers and industrial makers. But, it is facing a tough time due to the limited availability of infrastructure.