The board of directors of Chesapeake Energy Corporation (NYSE:CHK) approved the spin-off of the company’s oilfield services business today.

Chesapeake Energy Logo

According to a statement from the second largest natural gas producer in the United States, its oil services business will operate as a stand-alone, publicly traded company and will be named Seventy Seven Energy Inc. (SSE).

Details of the Chesapeake oilfield services business spin-off

Chesapeake Energy Corporation (NYSE:CHK) said Seventy Seven Energy Inc. will be separated through the distribution of its common stock to the shareholders of Chesapeake’s common stock on a pro rated basis.

The shareholders of Chesapeake Energy Corporation (NYSE:CHK) will receive one share of Seventy Seven Energy Inc. for every 14 shares of Chesapeake’s common stock they held on record after the close of business on June 19, 2014.

The second largest U.S. natural gas producer will not issue fractional shares of Seventy Seven Energy’s common stock. Shareholders will instead receive the cash value of the fractional share which they are entitled to receive.

Chesapeake Energy Corporation (NYSE:CHK) expects to start distributing shares by the end of this month subject to the completion of the closing conditions of the spin-off. The company will not retain any equity interest in Seventy Seven Energy Inc., and the new public entity will start trading its common stock under the ticker symbol “SSE” on the New York Stock Exchange (NYSE).

SSE common stock distribution is tax-free to shareholders

According to Chesapeake Energy Corporation (NYSE:CHK), the Internal Revenue Service (IRS) sent a private letter ruling indicating that the distribution of SSE common stock will be generally tax-free to shareholders of its common stock excluding any cash received related to their fractional share interests (generally taxable as capital gain).

SSE when-issued (SSE WI) public trading

Chesapeake Energy Corporation (NYSE:CHK) expects when-issued public trading for the SSE common stock “SSE WI” to start the NYSE on June 17 until the distribution date. According to the company, the regular trading of SSE common stock will begin on the first day when it starts the distribution of shares.

Jerry L. Winchester will remain as CEO and Cary D. Baetz as CFO of the Seventy Seven Energy Inc. after the completion of the spin-off. Its capital structure will be composed of a new senior secured term loan, a new asset-backed lending facility, existing senior notes due 2019 and new senior notes (subject to market conditions) due 2022.