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Must-know: Chesapeake and Exterran strike another deal

Must-know: Chesapeake and Exterran strike another deal (Part 1 of 3)

Must-know: Exterran and Chesapeake reach another deal in 4 months

Exterran and Chesapeake reach a second deal

On July 14, 2014, Exterran Partners LP (EXLP) announced that it would be acquiring natural gas compression assets from Chesapeake Energy (CHK) for $135 million. Compression assets are an integral part of natural gas transportation because they create pressure to “push” the gas through pipelines.

Through the deal, EXLP is slated to receive 162 natural gas compression units from CHK’s subsidiary company Midcon Compression. The deal between Exterran and Chesapeake is the second in four months. In April, Exterran bought 334 units from Chesapeake for $360 million.

Recent Transactions between CHK and EXLPEnlarge Graph

The assets from the latest deal are expected to add ~110,000 horsepower to the EXLP’s existing capacity. Currently, most of them are under a five-year contract with BHP Billiton Petroleum (BHP). Once the deal closes, which is expected to be in the 3Q14, the contract CHK has with BHP will be reassigned to EXLP.

It’s important to note that both CHK and BHP are components of the Vanguard Total World ETF (VT), while EXLP is a component of the Alerian MLP ETF (AMLP).

EXLP management noted that the deal would be financed through available credit and would be immediately accretive to EXLP’s distributable cash flow

This deal is in line with Chesapeake’s strategic initiatives, which is to divest its non-core assets—worth up to $4 billion—in 2014, to improve its balance sheet and free up some of its debt. CHK also completed the spinoff of its oilfield services business, Chesapeake Oilfield Services (or COS), last month, to form a stand-alone company called Seventy Seven Energy Inc.

The following sections in this series will discuss the impact of the latest transaction on EXLP and CHK.

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