Oklahoma City-based Chesapeake Energy Corporation will exit the Barnett Shale through a divestiture involving Williams Partners LP and Saddle Barnett Resources LLC, according to a company press release issued on Wednesday.
In a blockbuster deal designed to shore up expenses, Chesapeake will pay $334 million in cash to Williams in order to terminate its Barnett Shale gathering agreement with the Tulsa pipeline company. Williams was due to receive $170 million this year and $230 million next year under the former $1.9 billion agreement.
“Chesapeake is a great customer and an efficient operator; we look forward to a continued strong relationship as its leadership team directs the company’s focus on its most productive areas,” said Alan Armstrong, Williams’ Chief Executive Officer.
Dallas-based Saddle Barnett Resources will receive Chesapeake’s interest in the Barnett field in exchange for a payment to Williams in the amount of $420 million. Saddle acquires 2,800 operating wells and nearly 215,000 acres of land in the Barnett shale play, which accounted for almost 10 percent of Chesapeake’s total production.
Chesapeake CEO Doug Lawler called the transactions “an elegant solution to an asset that’s not making money at present.”
Chesapeake indicated that it employs almost 170 workers on the Barnett assets. These employees will be offered the opportunity to gain employment with Saddle Barnett Resources.
Chesapeake and Williams also announced on Wednesday that they have mutually agreed to renegotiate a revised gas-gathering agreement in the Mid-Continent region, subject to a payment of $66 million by Chesapeake.
“It helps make investments in the Mid-Continent more competitive,” said Lawler. “We have 1.5 million acres of land to develop, drill, exploit and explore. This reduction in the gathering fees gives us greater flexibility and greater profitability as we develop those assets.”
The transactions are expected to close in the third quarter.
“Chesapeake has to be a company that is competitive regardless of price,” said Lawler. “This move today — and our operating improvements and balance sheet improvements — are all things that are steps the company is taking so we’re not going to be under pressure with commodity prices.”