Chesapeake said in talks to sell pipelines for $4 billion

June 6 (Bloomberg) -- Chesapeake Energy Corp. is in advanced talks to sell pipelines to Global Infrastructure Partners for more than $4 billion, said two people with knowledge of the matter.

The Oklahoma-City based energy explorer, facing a $22 billion cash-flow shortfall after natural-gas prices touched a decade low is discussing selling its entire stake in Chesapeake Midstream Partners LP and other pipeline assets, said the people, who spoke on condition of anonymity because the talks are private. The negotiations may lead to a deal within days and could also fall apart, the people said.

Chesapeake Midstream operates pipeline networks in Texas, Louisiana, Pennsylvania and other gas-producing states, and had 3,953 miles (6,360 kilometers) of pipe as of March 31. The partnership gets about 75 percent of its revenue from Chesapeake Energy, with the remainder from energy producers such as France’s Total SA and Norwegian oil company Statoil ASA. Chesapeake Energy also owned 1,950 miles of pipelines separate from the Midstream partnership as of Dec. 31.

Chesapeake Midstream will be a “cash machine” for Global Infrastructure because it’s structured to pay an increasing dividend as profits increase, said David Askew, an analyst at RBC Capital Markets Corp. in Austin, Texas. As a master-limited partnership, or MLP, the company distributes most of its cash after capital spending to unit holders and its controlling partner.

Cash-Flow Shortfall

“Chesapeake Midstream should be a fast grower with a growing stable of assets,” Askew, who rates the units “outperform,” said in a telephone interview yesterday. “As a growing MLP, it should be pretty lucrative.”

Chesapeake Energy Chief Executive Officer Aubrey McClendon is seeking buyers for assets from Appalachia to the Rocky Mountains to plug a cash-flow shortfall that James Sullivan, an analyst with Alembic Global Advisors, has estimated may exceed $22 billion by the end of next year.

McClendon exited gas hedging contracts held by Chesapeake Energy in late 2011, leaving the company exposed when milder- than-normal winter weather across the northern U.S. slashed demand for the furnace fuel and prices plunged. Sullivan said in a May 17 note that the company may be forced to curtail spending on drilling if McClendon fails to sell enough assets.

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