Chesapeake Energy Corporation (CHK): The Jettisoning Continues

It’s a similar story with the Markwest Energy Partners LP (NYSE:MWE) deal. To support Chesapeake’s drilling program related to the assets its acquiring, Markwest Energy Partners LP (NYSE:MWE) will need to invest another $90 million over the next five years. Here again Chesapeake Energy Corporation (NYSE:CHK) is not only getting cash up front but its cutting out future capital expenditures.

That being said, Chesapeake isn’t getting something for nothing. In both of these deals the company signed long-term processing and gathering agreements. In the Markwest Energy Partners LP (NYSE:MWE) deal, it anticipates generating $30 million in EBITDA from the deal next year with EBITDA growing to more than $50 million by 2017. In the SemGroup Corp (NYSE:SEMG) deal Chesapeake Energy Corporation (NYSE:CHK) committed to a 20-year, 100% fee-based, gas gathering and processing agreement. While Chesapeake could have earned a little more by keeping these assets in house, it sees a better opportunity to reinvest the proceeds from the deal into the core of its core acreage.

To sum everything up, Chesapeake Energy Corporation (NYSE:CHK)’s divestitures this year have jettisoned very little actual oil and gas production. Instead, the company has been paring off its excess acreage and assets to save the company hundreds of millions in future capex. The company can take the money it received in the deals, and the funds that would have been required to fully develop those assets, and plow that money into its core assets. There’s little doubt that Chesapeake could have gotten more money for these assets if it didn’t need the cash, but these deals do allow the company to keep its most prized assets while making the best of its situation.

The article The Chesapeake Asset Exodus Continues originally appeared on Fool.com.

Motley Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy Corporation (NYSE:CHK), Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.

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