Chesapeake Energy Sells Pipelines in $2 billion Deal

Chesapeake Energy Sells Pipelines in $2 billion Deal


Last month Chesapeake Energy Corporation (NYSE:CHK) had announced it was negotiating the sale of almost $4 billion in pipeline assets to Global Infrastructure Partners (GIP) in two tranches of about $2 billion each. Later in the year it planned to sell almost 1.5 million acres of leasehold land in the Permian basin.

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Chesapeake Energy Corporation (NYSE:CHK) announced Monday that it had closed the sale of its general partner stake in Chesapeake Midstream Partners, L.P. (NYSE:CHKM), which owned more than 3,700 miles of gas pipelines, to GIP for $2 billion. With the sale GIP assumes ownership of the partnership’s general partner interest in its entirety, but only 69 percent of its limited partner units. With this sale Chesapeake has completed the first tranche of the sale of its pipeline assets.

In the other tranche, Chesapeake Energy Corporation (NYSE:CHK) will sell Chesapeake Midstream Development, a subsidiary company controlling 1,950 miles of natural gas pipelines, to GIP, for $2 billion.

The company has been forced to sell assets to trim a huge debt burden which has become difficult to service given plunging gas prices. However, according to Fadel Gheit, analyst at Oppenheimer, in a Reuters report, these assets are being sold for values in excess of their book values, which was a positive factor.

Recently, the company had to avail a $3 billion loan from Goldman Sachs Group, Inc. (NYSE:GS) and Jefferies Group, Inc. (NYSE:JEF) to defend its balance sheet and to meet commitments to banks.

Chesapeake has also faced a management upheaval in the recent months as founder and Chairman Aubrey McClendon was replaced as chairman by Archie Dunham, formerly of ConocPhillips. McClendon continues, however, as CEO.

The crisis was brought about by media exposure of various corporate governance failures at Chesapeake, particularly those relating to McClendon’s financial dealings with entities also transacting with Chesapeake, his hedge fund that dealt in the same commodities traded by Chesapeake and a controversial management perk that allowed McClendon a founder’s share in each oil well owned by the company.