Chesapeake Energy announced the sale of 220 miles of its Louisiana pipelines to its MLP for $500MM plus debt. As an equity investor, this is good news as it takes lower growth assets off its books and allows them to replace the assets with higher yielding, faster growth assets (Haynesville shale). As a debt investor, this is not good as it takes stable cash flow assets and replaces them with more volatile assets (although Haynesville is a good place to be). Bottom line, marginal positive for equity, negative for debt.
Chesapeake Energy Corp. (CHK - Ba3) will sell 220 miles of its Louisiana pipelines to subsidiary Chesapeake Midstream Partners LP (CHKM) for $500 million, the companies said on Thursday.
The deal allows Chesapeake Energy Corp., the second largest natural gas producer in the U.S., to shed the pipelines along with any debt that may be tied to them while still retaining a degree of control over the assets as the lead, or general, partner in Chesapeake Midstream. Chesapeake Midstream, meanwhile, can expand the pipelines by tapping into equities markets and not its parent company's balance sheet.
Oklahoma City-based Chesapeake Energy spun off several gas distribution assets earlier this year as the master limited partnership, but still owns nearly 35% of Chesapeake Midstream's shares.
Chesapeake Energy has 525,000 acres in the Haynesville formation and believes its reserves there could exceed the equivalent of 30,000 billion cubic feet of natural gas. Chesapeake said it produces around the equivalent of 785 million cubic feet there each day.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.