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Exterran Partners to Buy Assets from Chesapeake Unit

Zacks Equity Research

Exterran Partners, L.P. (EXLP), the limited partnership of the oilfield services provider, Exterran Holdings, Inc. (EXH) announced that it has entered into a deal to buy natural gas compression assets from a subsidiary of Chesapeake Energy Corporation (CHK), MidCon Compression, L.L.C. The contract is valued at around $135 million.

Investors responded positively to the news, as a result of which units of Exterran Partners gained 3.1% to close at $28.14. Exterran Holdings shares also gained about 3%, closing at $44.42.

The assets under sale include 162 compression units, which are expected to add about 110,000 horsepower to the partnership’s existing capacity. Most of these units currently provide service to BHP Billiton Petroleum in the Fayetteville Shale in Arkansas under a 5-year contract. On closure of this deal, the agreement with BHP will be reassigned to Exterran Partners.

The agreement is expected to close in the third quarter of the year and will likely be financed by Exterran Partners’ revolving credit facility.  

Management at Exterran Partners stated that this transaction is expected to be immediately accretive to the partnership’s cash flow. Hence, it intends to propose to the board of its managing general partner an increase in distribution for unitholders by 2 cents, on an annualized basis. The new distribution, if approved, would be applicable from the quarter in which this transaction closes. Exterran Partners currently pays cash distribution of 53.75 cents per unit or $2.15 annualized.

Exterran Partners has struck several similar deals with the Chesapeake subsidiary. In Apr 2014, the partnership completed the acquisition of 337 compression units from the subsidiary for approximately $360 million, adding about 440,000 horsepower to its capacity.

Currently, Exterran Partners has a Zacks Rank #3 (Hold), while Exterran Holdings has a Zacks Rank #4 (Sell). Meanwhile, one can consider better-ranked players from the oilfield services industry like C&J Energy Services, Inc. (CJES), which sports a Zacks Rank #1 (Strong Buy).

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