Chesapeake Energy Corporation to Spin Off Oilfield Services Business, Sell Additional Assets

In a precursor to its annual Analyst Day, Chesapeake Energyannounced several key strategic transactions today. The company has decided to proceed with the spinoff of its oilfield services business, Seventy Seven Energy, and it also announced several non-core asset sales.

The decision to spin off Seventy Seven Energy, as opposed to an outright sale, will provide a significant benefit to Chesapeake Energy's balance sheet. Approximately $1.1 billion of Chesapeake Energy's consolidated debt will be eliminated from its balance sheet in conjunction with the spin-off transaction, the company said. Further, Seventy Seven Energy will pay Chesapeake Energy a dividend of about $400 million, which Chesapeake Energy will apply to pay off intercompany debt. The company expects the spin-off transaction will be complete by June 30.

In addition to that, Chesapeake Energy announced that it has entered into an agreement with the preferred members of CHK Cleveland Tonkawa that will result in Chesapeake Energy divesting its ownership of the entity. The transaction will eliminate about $1.0 billion of equity attributable to third parties as well as $160 million in balance sheet liabilities for future overriding royalty interest obligations. The divestment will reduce the complexity of Chesapeake Energy's balance sheet as well as its future commitments.

Finally, Chesapeake Energy announced it sold several non-core producing properties in southwest Oklahoma and Texas for $310 million. The Texas sales include associated volumetric production payments, which will be transferred to the buyer. Chesapeake Energy also sold non-core acreage packages in Pennsylvania and Wyoming for $290 million. The buyer(s) were not named in the press release.

Combined these sales represent a net leverage reduction of nearly $3 billion as well as a significant reduction to the complexity of its balance sheet. The sales also represent a 2% reduction in the company's 2014 production along with a $250 million reduction in cash flow. However, the company still expects 2014 production growth to meet its guidance range of 9%-12%.

The company said that, combined with more than $925 million of asset sale proceeds received in the year up to May 7, the transactions announced today would bring the total value of sales and divestitures in 2014 to more than $4 billion.

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