Chesapeake has entered into a definitive agreement to form a joint venture on a portion of its midstream assets with Global Infrastructure Partners (GIP), a New York-based private equity fund. As part of the transaction, Chesapeake will contribute certain natural gas gathering and processing assets into a new entity, Chesapeake Midstream Partners, L.L.C. (CMP), and GIP will purchase a 50% interest in CMP.
Chesapeake will retain the remaining 50% interest in CMP and receive $588 million in cash from GIP. The assets Chesapeake will contribute to the joint venture are substantially all of its midstream assets in the Barnett Shale and also the majority of the company's non-shale midstream assets in the Arkoma, Anadarko, Delaware and Permian Basins. Closing of the transaction is anticipated to occur later this month.
CMP will enter into various agreements with Chesapeake, including a long-term gas gathering agreement at rates consistent with current market pricing. CMP will focus on unregulated business activities in service to both Chesapeake and third-party natural gas producers and its revenues will be generated almost entirely from fixed fee-based arrangements for gathering, compression, dehydration and treating services.
J. Mike Stice, Chesapeake's Senior Vice President for Natural Gas Projects, will serve as Chief Executive Officer of CMP. Additionally, CMP intends to expand its management team by adding a Chief Operating Officer and Chief Financial Officer in the next few months. In order to ensure continuity of service, performance and efficiency, the CMP assets will continue to be operated by existing Chesapeake employees through an Employee Secondment Agreement. In return for certain cost reimbursements, CMP will utilize various support functions within Chesapeake, including accounting, human resources and information technology.
Chesapeake will continue to operate its midstream assets outside of the CMP joint venture in a separate company, Chesapeake Midstream Development, L.P. (CMD), which will include natural gas gathering assets in the Fayetteville Shale, Haynesville Shale, Marcellus Shale and other areas in Appalachia.
Concurrent with GIP's funding of its interest in the joint venture, CMP is scheduled to close a new $500 million secured revolving bank credit facility agreement that matures in September 2012. CMP plans to utilize the facility to partially fund capital expenditures associated with the building of additional natural gas gathering systems and for general corporate purposes. Additionally, Chesapeake will amend and restate the existing lending agreement on its midstream assets to reduce the total capacity from $460 million to $250 million, among other changes.
This separate secured revolving bank credit facility will support CMD’s continuing midstream activities. Wells Fargo Bank and RBS Securities Inc. served as lead arrangers for the two separate bank credit facilities and Bank of Montreal, Compass Bank and Credit Suisse served as Co-Documentation Agents.
Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "We are pleased to announce the first step in unlocking the embedded value in our midstream assets and further execute on our asset monetization program. More importantly, we believe CMP will become one of the premier natural gas gathering businesses in the industry and serve as an attractive vehicle for monetizing additional Chesapeake gathering systems as they become more fully developed. CMP will continue to generate substantial synergies with our upstream operations and some day, we expect CMP to become one of the largest public midstream companies in the nation."
Stice, stated, "The new joint venture with GIP capitalizes on the financial strength and discipline of this premier financial partner and also the extraordinary growth opportunities within one of the nation's leading natural gas producers. I am honored to have been chosen as the CEO of this new joint venture and look forward to delivering exceptional value creation for both Chesapeake’s shareholders and for GIP and its limited partners."
Most Popular Articles
From the Career Center
Jobs that may interest you