Chesapeake Energy Corporation Selling Natural Gas Compression Assets for $520 Million

Access Midstream Partners and Exterran Partners buy units they used to lease from Chesapeake.

Feb 28, 2014 at 3:02PM

Today Chesapeake Energy (NYSE:CHK) announced it has come to agreement with two companies, Access Midstream Partners (NYSE:ACMP) and Exterran Partners (NASDAQ:EXLP), to sell 437 of its midstream compression units for $520 million, and the sales are expected to close by the end of the second quarter.

Chesapeake will sell 103 compression units to Access Midstream Partners for $160 million. Those units are used to service gathering systems in West Virginia, Pennsylvania, and Ohio. The natural gas compression assets were previously leased from Chesapeake Energy subsidiary MidCon Compression in the Utica and Marcellus Shale regions.

"These assets fit the Access Midstream business model extremely well," noted the CEO of Access Midstream Partners, Mike Stice, in its press release announcing the purchase. "Internalizing a portion of our compression expense is consistent with maintaining strong visibility to our cash flows." In addition, the company said the purchase allows it to insource a significant cost of its business model, while also adding potential growth opportunities.

Exterran Partners noted in its announcement it will purchase 334 units across Arkansas, Louisiana, Oklahoma, Texas, and Wyoming for $360 million. In addition, as a result of the purchase Exterran and Access have entered into a contract in which Exterran will provide Access with compression services in regions including the Permain Basin, Eagle Ford formation and other shale positions over the next seven years.

"With this transaction, we continue to deliver on our strategy of growing our core contract operations business," said the CEO of Exterran Partners, Brad Childers, in  statement. "Because the units we are acquiring are highly standardized and average less than five years in age, the acquisition is also consistent with our strategy to modernize and standardize our existing fleet."

For its part, Chesapeake said it continues to streamline its portfolio to focus on core assets. "These sales ... will generate more than $500 million toward improving our balance sheet, while having minimal impact on our 2014 cash flow guidance," CFO of Chesapeake Energy, Domenic J. Dell'Osso, was quoted as saying.

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Patrick Morris has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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