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April 11, 2012 6:32 PM

Bracewell Advises Chesapeake Energy on the Biggest of $2.6 Billion Trio of Deals

Posted by Tom Huddleston Jr.

UPDATE:  4/12/12, 5:55 p.m. EDT, a Vinson & Elkins M&A team including partners Todd Triller, Robin Fredrickson, and Keith Fullenweider advised TPG Capital in the CHK Cleveland Tonkawa share purchase.

Chesapeake Energy Corporation announced a trio of deals on Monday that will net the Oklahoma City–based oil and gas producer $2.6 billion in cash.

The largest of the deals is the $1.25 billion sale of preferred shares in newly formed subsidiary CHK Cleveland Tonkawa—an entity that combines two of the company's liquids-rich assets in Oklahoma—to an investment group led by GSO Capital Partners, an affiliate of private equity firm The Blackstone Group. The purchasing group also includes TPG Capital, Magnetar Capital, and EIG Global Energy Partners. The completed deal calls for the group to receive a 3.75 percent royalty interest in the first 1,000 new wells drilled on the 245,000-acre play in question, as well as a 6 percent quarterly dividend.

A team from Bracewell & Giuliani advised Chesapeake on the sale. The firm's team includes business and regulatory cochair G. Alan Rafte, tax partner Elizabeth McGinley, and corporate partner John Brantley. Earlier this month, the firm also represented Chesapeake in a Utica Shale joint venture with EIG Global Energy Partners.

Chesapeake also turned to longtime outside counsel C. Ray Lees of Oklahoma City's Commercial Law Group for legal advice on the sale as well as the other two deals announced on Monday. Henry Hood is Chesapeake's general counsel and Douglas Jacobson is executive vice president of acquisitions and divestitures.

Magnetar Capital, one of the members of the purchasing group, is being advised by a team from Weil, Gotshal & Manges led by Dallas-based corporate partner Rodney Moore. Information on the firms representing the other members of the investor group was not available in time for publication. A spokeswoman for Blackstone's regular outside counsel, Simpson Thacher & Bartlett, said the firm is not involved in this transaction. (John Finley, Blackstone's chief legal officer, is a former Simpson Thacher partner.)

In the second of Monday's deals, Chesapeake completed the sale of a ten-year volumetric production payment (VPP) to an affiliate of Morgan Stanley for roughly $745 million. Going back to 2007, Chesapeake has completed ten VVP's (in which the company accepts money up front in exchange for natural gas output over a set period) for a total of nearly $6.4 billion in proceeds. This particular deal is for natural gas assets from Chesapeake's Anadarko Basin Granite Wash play in Oklahoma.

Chesapeake's third deal on Monday calls for the company to sell 58,400 acres of leasehold in the Texoma Woodford natural gas play in Oklahoma to Exxon Mobil Corporation subsidiary XTO Energy Inc. XTO will pay approximately $590 million in cash for the tract. That deal is expected to close by the end of the month.

Chesapeake, the nation's second-largest natural gas producer behind Exxon Mobil, has been shedding shale assets as part of an effort to reduce its long-term debt. In January, Chesapeake raised roughly $2.32 billion by selling a 25 percent stake in its Utica Shale parcel in eastern Ohio to French oil company Total. The plan is partly a response to demand from Chesapeake's shareholders, as stock prices have dipped almost 40 percent in the past year.

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