Chesapeake Midstream Partners To Acquire Assets In Marcellus Shale

Transaction Type
Sellers
Buyers
Announce Date
Post Date
Estimated Price
865MM
Description

To buy subsidiary with 47% interest in Marcellus shale southern region.

OKLAHOMA CITY-- Chesapeake Midstream Partners LP (NYSE: CHKM) on Dec. 28 announced it has agreed to acquire Appalachia Midstream Services LLC, the wholly owned subsidiary of Chesapeake Midstream Development LP that holds its Marcellus Shale midstream assets, for total consideration of $865 million. Chesapeake Midstream Development LP is a wholly owned subsidiary of Chesapeake Energy Corp. (NYSE: CHK). The addition of the Marcellus assets makes CHKM the industry’s largest gathering and processing master limited partnership as measured by throughput volume.

Through acquiring AMS, CHKM will own approximately 47% of an integrated system of assets that consist of approximately 200 miles of gathering pipeline in the Marcellus shale, including the liquids-rich Marcellus South region. Throughput for these assets on Dec. 15, 2011, was just over 1 billion cubic feet per day. AMS operates the assets under 15-year fixed fee gathering agreements with leading Marcellus natural gas and liquids producers. The gathering agreements include significant acreage dedications and annual fee redeterminations that target a mid-teens return on all invested capital in the acquired assets. Chesapeake has committed to generating EBITDA of not less than $100 million in 2012 and $150 million in 2013 from the Marcellus assets for the benefit of CHKM.

The acquisition, which is expected to close by Dec. 30, 2011, will be financed by $600 million of cash drawn from CHKM’s revolving credit facility and equity consideration of $265 million (9.8 million CHKM common units), increasing Chesapeake’s limited partnership ownership of CHKM to 46.1% from 42.3%. On December 20, 2011, CHKM completed an amendment of its credit facility that increased total borrowing capacity to $1.0 billion.

Terms of the transaction were unanimously approved by the board of directors of CHKM’s general partner and by the Board’s conflicts committee, which is comprised entirely of independent directors. The conflicts committee engaged Tudor, Pickering, Holt & Co. Securities, Inc. to act as its financial advisor and Richards, Layton & Finger PA to act as its legal advisor.