Chesapeake Energy Corporation Seals a Deal With Williams Companies to Reduce Costs
Chesapeake Energy Corporation (NYSE:CHK) has taken another big step forward to reduce its costs so that it can increase the margin it’s earning on its natural gas production in a low price environment. That step is in the form of a new gas gathering agreement with its midstream partner Williams Companies (NYSE:WMB) and its MLP affiliate Williams Partners (NYSE:WPZ) in the Haynesville and dry gas Utica shale. The new deal will lower Chesapeake Energy’s costs so that it can drive volume growth in both of those plays.
Doing what it said it would do
On its second-quarter conference call, Chesapeake Energy CEO Doug Lawler said that the company was having “positive discussions with Williams, our primary gas gathering provider,” on a new gas gathering agreement and that he was “confident in finding mutually agreeable solutions that will benefit both companies.” Today, that confidence has been rewarded as the company has finalized two very important agreements with Williams.
There are three primary attributes to this deal:
Chesapeake will see a significant improvement in its per unit gathering rates in these two areas beginning in 2016.– This will lead to enhanced volume growth for Chesapeake, which also benefits Williams
The combination of the gathering system agreements allows Chesapeake to satisfy minimum volume commitment (MVC) obligations in the Haynesville Shale. — This will lead to an increase in the realized pricing per mcf of gas.
The aligned strategic interests improve drilling economics, operational efficiency, and midstream asset utilization.