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Chesapeake Energy to Sell Midstream Assets for $4 Billion

By Kristin Jones Chesapeake Energy Corp. (CHK) plans to sell midstream assets in three separate transactions totaling more than $4 billion in cash, as the embattled natural-gas company struggles against mounting debt. The natural-gas company said it expects the divestitures to reduce previously budgeted capital expenses by around $3 billion over the next three years. Global Infrastructure Partners LLC has agreed to buy limited partner units and general partner interests in Chesapeake Midstream Partners L.P. (CHKM) for $2 billion. Chesapeake expects to receive the first half of the proceeds on June 15, and a final payment by June 29. The net book value for these assets as of March 31 was around $1 billion, and the company expects to report a pretax gain of roughly the same amount. Chesapeake also agreed to the potential sale of certain mid-continent gathering and processing assets to Chesapeake Midstream Partners. At the same time, it agreed to sell the company's interests in its wholly-owned subsidiary Chesapeake Midstream Development L.P. to Global Infrastructure Partners. For these two transactions, Chesapeake expects total cash proceeds of more than $2 billion. The net book value of the assets was around $1.4 billion as of March 31. The agreement with Global Infrastructure Partners includes a 45-day exclusive negotiation period, with a possible 45-day extension. "We have been working for the past few months to monetize our substantial and valuable midstream assets and are pleased to announce the sale of our investments in [Chesapeake Midstream Partners] and a plan to sell our remaining midstream assets at attractive prices," said Chief Executive Aubrey K. McClendon, who is also the company's founder. "These transactions will preserve the strategic relationships we have with [Chesapeake Midstream Partners] and [Chesapeake Midstream Development] as our primary midstream service providers and further strengthen the close relationship we have enjoyed with [Global Infrastructure Partners] since 2009." The deals will bring Chesapeake's disclosed asset sales of the year to $6.6 billion, and McClendon said the company expects to meet its targeted range for 2012 asset sales. Under pressure from shareholders, Chesapeake is expected to replace more than half of its board with new directors, limiting the power of McClendon. The company's controversial founder has led Chesapeake on a massive expansion in recent years, as the company acquired drilling rights to a territory three times the size of New Jersey and became the nation's second-largest natural-gas producer. McClendon's appetite for risk and corporate governance has come under attack in recent weeks, and Chesapeake's largest shareholders have criticized the company for spending billions of dollars more than it takes in from natural-gas and oil sales. Shares were up 1.4% in premarket trading to $18.10. The stock is down 20% so far this year. Write to Kristin Jones at kristin.jones@dowjones.com

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