Chesapeake Energy to Exit Barnett Shale -- Update
August 10 2016 - 6:52PM
Dow Jones News
By Erin Ailworth and Josh Beckerman
Chesapeake Energy Corp. is paying nearly $340 million to exit
the Barnett Shale in Texas as the Oklahoma City-based energy
producer tries to clean up its finances.
The deal will help rid Chesapeake of nearly $1.9 billion in
financial commitments it had to Williams Partners LP, a pipeline
company that moved to market the natural gas Chesapeake pumped in
the Barnett. Chesapeake was on the hook to pay Williams $170
million this year and $230 million next year, the company said
Wednesday.
Instead, Chesapeake has agreed to pay Williams $334 million in
cash that will get the oil and gas producer out of its pipeline
contract in the Barnett. In addition, Chesapeake will transfer its
interests in the Barnett field to Saddle Barnett Resources LLC, a
private equity-backed company based in Dallas.
In addition, Saddle will pay Williams $420 million as part of
the deal, giving it 2,800 operated wells and about 215,000 acres of
land in the area.
Chesapeake Chief Executive Doug Lawler said the company hasn't
invested significantly in the acreage for several years, so selling
it improves Chesapeake's finances while giving another company the
opportunity to drill there.
"We are essentially divesting an asset that is a very
significant cash-flow drain on the company every single year," he
said. "This is just another step in strengthening Chesapeake."
Williams Partners said in statement that it expects to receive
$820 million of upfront cash payments, and said the transactions
would reduce customer concentration risk.
"These agreements will create a win-win commitment that results
in both short- and long-term benefits for Williams," said Alan
Armstrong, CEO of Williams Partners' general partner.
Saddle Resources couldn't immediately be reached for
comment.
Chesapeake will also pay Williams $66 million after
renegotiating a separate gas-transportation contract the two have
for moving gas out of fields in Oklahoma.
The Barnett Shale was once a prolific gas field near Fort Worth
in North Texas, but in recent years drilling for new wells has
waned amid low natural gas prices. There are currently four rigs
drilling in the Barnett, compared with 177 rigs drilling in the
Permian Basin of West Texas, according to data from Baker Hughes
Inc., an oil-field service company in Houston.
The three-way Chesapeake arrangement is unusual, but the company
has been strained in recent years by so-called minimum volume
commitments on pipelines, which require it to move a high volume of
fuel or pay a penalty. Chesapeake needed to shed those commitments
and said the deal will improve its operating income by $200 million
to $300 million each year through 2019.
Chesapeake's stock price, which settled at $4.80 Wednesday,
gained nearly 6% in after-hours trading to $5.07 a share.
Write to Erin Ailworth at Erin.Ailworth@wsj.com and Josh
Beckerman at josh.beckerman@wsj.com
(END) Dow Jones Newswires
August 10, 2016 18:37 ET (22:37 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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