Chesapeake Midstream to Acquire Gas Gathering Assets in Marcellus Shale (CHKM)

Chesapeake Midstream Partners L.P. (NYSE: CHKM), an Oklahoma City, Oklahoma-based company engaged in natural gas gathering, has agreed to acquire Appalachia Midstream Services LLC, a wholly-owned subsidiary of Chesapeake Midstream Development LP that holds Marcellus Shale midstream assets , for $865 million.

Chesapeake Midstream Development is a wholly-owned subsidiary of Chesapeake Energy Corporation (NYSE: CHK).

Chesapeake Midstream Partners said that the addition of Marcellus Shale assets makes it the industry’s largest gathering and processing master limited partnership as measured by throughput volume. Through the acquisition of Appalachia Midstream, Chesapeake Midstream will own nearly 47% of an integrated system of assets that include approximately 200 miles of gathering pipeline in the Marcellus Shale.

The company said that the throughput for the assets at December 15, 2011 was just over one billion cubic feet per day. Appalachia Midstream currently operates the assets under 15-year fixed fee gathering agreements with leading Marcellus natural gas and liquids producers. The agreements include major acreage dedications and annual fee redeterminations that target a mid-teens return on all invested capital in the acquired assets.

Chesapeake Midstream financed the acquisition with $600 million of cash drawn from its revolving credit facility and equity consideration of $265 million. The equity consideration would increase Chesapeake’s limited partnership ownership of Chesapeake Midstream to 46.1% from 42.3%.

J. Mike Stice, CEO of Chesapeake Midstream, said that the company is excited to expand its footprint into the Marcellus Shale, further increasing the company’s basin diversification and more importantly, exposing it to the increased drilling activity in the liquid rich-regions in the Marcellus South. Stice said that with the closing of the transaction, the company will have completed two significant acquisitions from Chesapeake in just 18 months since its IPO and will have created the industry’s largest gathering and processing MLP.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.