This Doesn't Sound Good

The article below was sent to me.  I am somewhat bothered by the "10-year, 100 percent fixed-fee gathering agreement."  That seems to eliminate any competition or motivation to keep gathering costs down.  Given the concerns we already have about CHK's higher-than-average deductions for their royalty owners, this does not sound good to me.  Does anyone else have a better interpretation of what this means?

 

Midstream paying $500 mln cash

* Involves 220 miles of pipeline in Louisiana

HOUSTON, Dec 16 (Reuters) - Chesapeake Midstream Partners L.P. CHKM.N> said on Thursday it plans to buy a natural gas gathering system and related assets in the Haynesville Shale from a subsidiary of
Chesapeake Energy Corp (CHK.N: Quote, Profile, Research, Stock Buzz) for $500 million cash.

The acquisition will be financed with a draw on the partnership's revolving credit facility of about $250 million plus $250 million of cash on hand.

The partnership will acquire Chesapeake's 100 percent ownership interest in the Springridge system which consists of 220 miles of gathering pipeline in Caddo and De Soto Parishes in Louisiana .

At closing, the partnership will also enter into a 10-year, 100 percent fixed-fee gas gathering agreement with Chesapeake Energy.

After the deal, Chesapeake Midstream will have about $500 million of additional borrowing capacity on its credit facility.

The deal is expected to close before the end of this year. (Reporting by Anna Driver in Houston; Editing by Tim Dobbyn)

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Permalink Reply by P.G. on January 2, 2011 at 5:10
Maybe those who sign a lease with CHK in the future should accept no less than say 40% royalty to offset all those bogus expenses so they could come out the same as say signing with an honest company at 25%, huh?
Permalink Reply by P.G. on January 4, 2011 at 8:33

Be interesting to find out how much bonus money local politicians and their families got in their leases....

and or terms....

Permalink Reply by Linda Whatley on January 5, 2011 at 5:41

I always love reading your post GoshDarn.  Your wisdom, and common sense, is awsome!

Permalink Reply by Linda Whatley on January 5, 2011 at 20:40

I sure hope so..... thanks GoshDarn.

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