Chesapeake also exited transportation contracts with Williams, saving $1.9 billion over the life of the contracts.
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Chesapeake Energy Corp said on Wednesday that it would sell its Barnett shale acreage in Texas to private equity-backed Saddle Barnett Resources LLC and had renegotiated an expensive pipeline contract with Williams Partners LP, steps that should save more than $1.9 billion in future liabilities.
Separately, Chesapeake accelerated the value of a gas supply contract by selling its rights under a long-term gas supply agreement for $146 million in cash proceeds. The company helped lead a leasing frenzy and became a community benefactor before gas prices collapsed and it started to pull back. For Chesapeake, the Barnett is its second-smallest production region, accounting for 10 percent of the company’s output.
Once ground zero for the US shale boom, the Barnett Shale in North Texas faded in importance as gas prices collapsed and explorers discovered new deposits such as the Marcellus and Utica shales that are closer to urban demand centers along the eastern seaboard.
Wall Street cheered the news, and shares of Chesapeake rose 5.6 percent to $5.07 in after-hours trading.
Divesting one of the cornerstones of Chesapeake’s portfolio expands Chief Executive Officer Doug Lawler’s deconstruction of the shale empire amassed by his predecessor, the late Aubrey McClendon.
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.
The deal will help rid Chesapeake of almost $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. Saddle is also paying an undisclosed sum to Williams as part of the deal, according to Chesapeake’s statement.
“The transformation of Chesapeake into a top-tier E&P (exploration and production) company continues, and these transactions, along with our previously announced balance sheet and liquidity improvements, provide significant forward progress”, Lawler said in a news release. Chesapeake has also renegotiated its agreement with Williams for the Mid-Continent area in exchange for $66 million.
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This article includes material from Star-Telegram archives.
