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Chesapeake Energy to sell Barnett land, renegotiate Williams contract

Chesapeake Energy

Chesapeake Energy is selling its Barnett shale acreage in Texas to Saddle Barnett Resources.  

Chesapeake Energy shares up in after-hours trading

Aug 10 (Reuters) – 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.

Wall Street cheered the news, and shares of Chesapeake rose 5.6 percent to $5.07 in after-hours trading.

As part of the deals, Chesapeake said it would convey to Saddle, owned by private equity firm First Reserve, its roughly 215,000 acres in the Barnett, which also includes about 2,800 operated wells.

Chesapeake also exited transportation contracts with Williams, saving $1.9 billion over the life of the contracts. Chesapeake is paying Williams more than $334 million to cancel the contract, with First Reserve set to pay an additional, undisclosed amount.

The new contract with Saddle eliminates the expensive methodology that the Chesapeake contract was based upon, and instead will use spot natural gas prices to determine transportation costs.

Because of the expensive contract, Chesapeake had found it expensive to drill in the Barnett in recent years.

Both transactions should save Chesapeake Energy at least $250 million in gathering, processing and transportation costs this year and $465 million next year, the company said.

Chesapeake also renegotiated gas transportation contracts for other mid-continental shale plays with rates 36 percent lower starting July 2016.

The company also cut its average daily production rate to 611,000-638,000 barrels from 625,000- 650,000 barrels.

(Reporting by Arathy S Nair in Bengaluru; Additional reporting by Ernest Scheyder in Houston; Editing by Sriraj Kalluvila and David Gregorio)

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

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