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1 key way Chesapeake Energy plans to fill its funding gap

Ingrid Pan, CFA

Why Chesapeake Energy's asset sale is positive for all parties (Part 1 of 4)

Exterran Partners acquires assets from Chesapeake Energy

On February 28, 2014, Exterran Partners LP (EXLP) announced that it would acquire certain natural gas compression assets from Chesapeake Energy (CHK) for $360 million. The assets comprise 334 compression units, with a total horsepower of ~440,000 (implying a purchase price of ~$818 per unit of horsepower). The units that EXLP acquired operate in gathering systems in Arkansas, Louisiana, Oklahoma, Texas, and Wyoming. EXLP management noted that the transaction is expected to be accretive to distributable cash flow. The transaction is subject to closing conditions and is expected to close in the second quarter 2014. Exterran Holdings (the general partner of EXLP, and a publicly traded company) has also agreed to purchase $150 million of newly issued equity from EXLP to fund a portion of the purchase price if EXLP doesn’t raise enough equity prior to the closing date of the acquisition. To read a key overview of Exterran Partners, please see Exterran Partners overview: Recent success and key trends.

Simultaneously, Access Midstream Partners (ACMP) announced that it would purchase 103 compression units with 200,000 horsepower of capacity for $160 million from Chesapeake Energy (implying a purchase price of ~$800 per unit of horsepower). The units that Access Midstream acquired operate in gathering systems in Ohio, Pennsylvania, and West Virginia (Marcellus and Utica Shales). Access notes that the assets were acquired at ~8x forward EBITDA multiple. The acquisition is to be funded with borrowings under Access Midstream’s revolver, and is expected to close by March 31, 2014. Management believes the acquisition will be immediately accretive to distributable cash flow.

ACMP, CHK, and EXLP affect the Oppenheimer SteelPath MLP Funds Trust (AMLP) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Through these divestitures, Chesapeake will receive proceeds of $520 million. Chesapeake CFO Domenic Dell’Osso commented that these transactions will have “minimal impact” on 2014 cash flow guidance.

To find out more about how this transaction affects the related parties, read on to the following parts of this series.

Continue to Part 2

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