Chesapeake may soon unload pipeline business and other oil investment

Chesapeake Energy and Global Infrastructure Partners, or GIP, are about to conclude talks on the terms of sale of the oil firm’s assets in favor of GIP.  The assets are worth more than $4 billion and could partially cover the cash-strapped company’s funding deficit, which sources say has reached $10 billion.

GIP and Chesapeake’s pipeline firm, Chesapeake Midstream Partners, are actually long-time partners who have since been investing in oil pipeline ventures.

According to a source who has requested anonymity, the discussions were chiefly on Chesapeake’s agreement to sell its entire holdings in the midstream firm to GIP, including all oil pipelines.  However, the terms and conditions that make up the deal were not disclosed.

The oil firm ranks second among the largest producers of natural gas in the United States, but due to the sharp decline in gas prices, the company’s revenues have nosedived, prompting it to remedy the situation via debt reduction and asset disposal. A month ago, the company obtained a bridge loan amounting to $4 million as an emergency measure to raise cash.

Last April, Aubrey McClendon, the oil firm’s Chief Executive, was deeply involved in a controversy where he was accused of obtaining over $1 billion worth of loans and that he used his holdings in Chesapeake oil wells as loan collateral.

Eventually, the chief executive was forced to give up chairmanship over Chesapeake.  The firm said it will also drop four existing board members, but will introduce more directors to be appointed by major stakeholders.

Both Chesapeake and GIP chose not to comment on the matter.

Other news sources also indicate that Chesapeake aims to focus and invest in oil exploration and production in lieu of pipeline operations.  Historically, its pipeline business has been a steady source of revenue for the company.

Based on Chesapeake’s website, its pipeline company owns oil pipes that span 3,700 miles.  As of 2011, it also owned oil pipelines which extend 1,950 miles, but this is not part of the Chesapeake and GIP venture.

The asset sale to GIP is part of Chesapeake’s program to dispose over $11.5 billion of its assets before the year ends.  The company also reported that it plans to auction off some oil-rich land and other holdings in western Texas, Wyoming, Colorado, and Ohio.

Currently, it is looking for a partner for its Mississippi Lime basin natural gas project.