U.S. gas giant Chesapeake Energy Corp. (CHK) intends to sell off an aggregate of 437 compression units and related assets in two separate deals worth about $520 million in an effort to taper its massive gap. Both transactions are likely to close before the end of the second quarter of 2014.
The Oklahoma City-based company’s subsidiary, MidCon Compression, L.L.C., will sell 334 compression units, with a combined capacity of about 440,000 horsepower, to Exterran Partners, L.P. (EXLP). This transaction will raise funds of about $360 million. The units service gathering systems in Arkansas, Louisiana, Oklahoma, Texas and Wyoming.
Chesapeake will also sell 103 compression units, with a combined capacity of around 200,000 horsepower, to Access Midstream Partners, L.P. (ACMP) for $160 million. These units service gathering systems in Ohio, Pennsylvania and West Virginia.
The transactions are aimed at streamlining Chesapeake’s portfolio – a continued effort to focus on its core assets. These sales are expected to immediately generate over $500 million and boost its balance sheet, and at the same time have negligible impact on its 2014 cash flow guidance.
For over a year, the company has been working on closing a multi-billion-dollar funding gap through the sale of its various assets and reducing its expenses. However, Chesapeake’s survival is no longer dependent on its divestiture program. For 2014, the company expects to lower its spending by 20% and is also contemplating the spin-off of its drilling services unit.
Chesapeake is on track with its plan of reducing long-term debt through monetizing its assets and cutting lease-hold spending. This monetization initiative is mainly aimed at coping with the mounting debt level as well as filling the funding gap for its 2014 expenditures.
Chesapeake currently holds a Zacks Rank #3 (Hold). Better-ranked oil and gas stocks include Zacks Rank #1 (Strong Buy) Helmerich & Payne, Inc. (HP).
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