Chesapeake Assets Sale Infuses Utica Investments
YOUNGSTOWN, Ohio -- Chesapeake Energy Corp.'s sale of most of its midstream assets across the country is likely to infuse new investment in eastern Ohio's Utica shale -- bolstering a $900 million infrastructure project under way in southern Columbiana County, executives say.
Chesapeake announced late Tuesday it will sell a substantial majority of its midstream assets to Access Midstream Partners LP for $2.16 billion.
"This transaction truly is transformational," J. Mike Stice, CEO of Access Midstream, told analysts during a conference call. "It dramatically expands our footprint into three new liquids-rich basins and diversifies our portfolio."
The deal consists of Access acquiring Chesapeake's midstream holdings in the Eagle Ford shale in Texas, the Niobrara shale play in Wyoming, and the Utica.
Chesapeake ended its third quarter with just $142 million in cash and equivalents, but carries more than $16 billion in debt. The sale would allow the cash-strapped energy giant to cut its net debt between 10% and 15%.
Asset sales have totaled nearly $5 billion this year for Chesapeake, including the latest Access transaction.
Concurrently, Access announced it has secured a new partnership with Williams Companies, which would acquire 25% of Access Midstream, along with a 50% stake in a general partnership with Global Infrastructure Partners. In June, Williams pumped a $380 million investment into a Utica pipeline operated by Caiman Energy, and spent $2.5 billion in March to acquire Caiman Energy's pipelines in the Marcellus shale in Pennsylvania.
The Utica acquisition includes gas-gathering pipelines and infrastructure, as well as a share of a $900 million processing system that will stretch from Kensington in Columbiana County to another hub in Harrison County.
"We'll be putting over 600 miles of pipe here in the next year," reported Robert Pergason, COO of Access Midstream.
While he said the initial focus would be on developing oil infrastructure in the Eagle Ford shale, Pergason said that the Utica is likely the second-highest priority in terms of investment strategies.
He said the new partnership with Williams would mean another $1.6 billion worth of capital spending in shale plays in 2013, and another $1 billion in 2014.
Access Midstream has partnered with EV Energy Partners and M3 Midstream to develop the Utica East Ohio processing complex, for which Chesapeake will be its biggest customer.
The Kensington plant will draw natural gas from producing wells in Columbiana, Carroll, Harrison and Jefferson counties and then chill that gas to about 150 degrees below zero. That process separates the dry gas, such as methane, from liquid gases and oil. The dry gas is then fed into a pipeline and to market, while the wet gas is pumped through a 24-inch pipeline that connects the Kensington operation with another plant in Harrison County.
The Harrison County fractionation plant would then separate the wet gasses into specific products such as butane, ethane and propane, and transport those liquids to "cracker" plants or other processing centers across the country, where they are further refined.
"We're excited about continuing to grow as the Utica develops," Pergason said.
Chesapeake Midstream Development held 49% of the Utica East project, but now those interests would be transferred to Access. Access also acquired Chesapeake Midstream's interests in Cardinal Gas Services, a natural gas-liquids gathering system in the Utica formed by Chesapeake, the French company Total SA, and Houston-based EnerVest Energy.
Stice said the Utica, as well as portions of the Marcellus shale in southwestern Pennsylvania, is so liquids-rich that he envisions the region would require future processing and transportation lines that would pump oil and gas to the Gulf Coast.
"There could potentially be a project down the road that brings additional liquids from that part of the world back to the demand centers in the Gulf Coast," he remarked.
Copyright 2012 The Business Journal, Youngstown, Ohio.
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