by Lou Whiteman | Published June 8, 2012 at 11:07 AM
Oil and gas explorer Chesapeake Energy Corp., struggling against a mounting debt burden, said Friday, June 8 it would sell various midstream pipeline assets in three deals that are expected to raise more than $4 billion in cash.
Oklahoma City-based Chesapeake said it would sell its entire 45% interest in Chesapeake Midstream Partners LP to Global Infrastructure Partners for $2 billion, and would also sell additional assets to Chesapeake Midstream for a similar amount. In addition to raising cash the company said that the deals would reduce capital expenditures by about $3 billion over the next three years.
Chesapeake in February said it could sell upwards of $12 billion in assets to pay down debt and cover an expected funding gap partly caused by low natural gas prices. The company has also announced plans to sell 1.5 million acres of lease holdings in west Texas and more than 800,000 acres spread across Wyoming, Colorado and Ohio.
Chesapeake has been under siege in recent months as reports surfaced about company chairman and CEO Aubrey K. McClendon's unusual compensation plan and non-Chesapeake investments. McClendon in May said he would step down as chairman of the company.
Chesapeake's divestiture announcement came hours before the company's mid-day annual meeting in which shareholders could vote to replace members of its board. Activist investor Carl Icahn has amassed a 7% stake in Chesapeake, and has been pushing the company to sell pipeline assets to cut future capital expenditures.
In addition to the shareholder vote today the company has an agreement in place with Icahn and Southeastern Asset Management, its largest shareholder, to replace four of nine board members with directors they choose.
McClendon in a statement called the divestitures announced Friday "an important part of our 2012 asset sales program" that he said is on track to generate cash proceeds of between $11.5 billion and $14 billion.
"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] and a plan to sell our remaining midstream assets at attractive prices," McClendon said.
Global Infrastructure Partners has a long history with Chesapeake, having bought the firm's natural gas gathering and processing assets in 2009 for $588 million.
GIP managing partner Adebayo Ogunlesi in a statement said "we have enjoyed a mutually beneficial partnership with Chesapeake over the past three years, and we look forward to continuing to provide Chesapeake with high quality midstream services while expanding these offerings to other producers requiring similar services."
A Citigroup team including Amit Jhunjhunwla, Joel Foote and Michael Jamieson advised GIP. Jefferies & Co.'s Ralph Eads and Ajay Khurana have been advising Chesapeake on asset sales. - Claire Poole in Houston contributed to this report