Chesapeake To Exit Barnett Shale; To Make $400 Mln Payment To Williams Partners

(RTTNews) - Chesapeake Energy Corp. (CHK) announced it has entered into an agreement to convey its interests in the Barnett Shale operating area located in North Texas to Saddle Barnett Resources, LLC, a company backed by First Reserve. As part of the deal, Chesapeake and Williams Partners (WPZ) have agreed to terminate the current gathering agreement, projected MVC shortfall payments and fees pertaining to the Barnett Shale assets, for which Chesapeake expects to pay $334 million in cash to Williams, with First Reserve portfolio company Saddle Resources expected to pay an additional sum.

Properties in the proposed Barnett transaction include approximately 215,000 net developed and undeveloped acres and approximately 2,800 operated wells, which produced an average of approximately 65,000 boe per day (96% natural gas, 4% natural gas liquids) in the 2016 second quarter. The company said the expected net production impact from the proposed transaction is approximately 62,000 boe per day.

Chesapeake CEO Doug Lawler said, "By exiting the Barnett, we expect to increase our operating income for the remainder of 2016 through 2019 between $200 and $300 million annually, eliminate approximately $1.9 billion of total future midstream and downstream commitments, and increase the PV-10 of our proved reserves."

In exchange for a cash payment of $66 million, Chesapeake also renegotiated its existing cost-of-service gas gathering agreement with Williams covering the Mid-Continent operating area to a fixed-fee arrangement. As a result, Chesapeake's Mid-Continent gas gathering costs are expected to be reduced by 36%, effective July 1, 2016.

Chesapeake also agreed to accelerate the value of a long-term natural gas supply contract with a $4.00 per million British thermal units floor pricing mechanism by selling it to a third party for cash proceeds of approximately $146 million.