Southwestern Energy has agreed to sell its natural gas properties and affiliated midstream business in the Fayetteville Shale in Arkansas, US to Flywheel Energy, a private company backed by Kayne Private Energy Income Funds, for $1.865bn.
As per the agreement terms, Southwestern Energy will divest assets which include 716 million cubic feet per day (mmcf/d) of net production from 4,033 producing wells across over 900,000 net acres and an integrated midstream gathering system with over 2,000 miles(3,218km) of gathering pipelines and more than 50 compressor stations, all located in central Arkansas.
Southwestern Energy president and CEO Bill Way said: “The sale of Fayetteville represents a pivotal and deliberate step towards fulfilling our promise to reposition Southwestern Energy to capture greater returns from our higher margin Appalachia assets.
“This transaction is a significant milestone in advancing our strategic plan. Our shareholders will benefit from an optimized portfolio, stronger balance sheet including improved financial flexibility and the return of capital to all shareholders through a share repurchase program.”
Proceeds from the transaction are planned to be used by Southwestern to pay off $900m of its more than $3bn debt, and spend $200m to repurchase shares over the next 12 months.
Over the next two years, the firm intends to allocate up to $600m, in aggregate, as supplemental investment to further develop its Appalachia assets and accelerate the path to self-funding.
Flywheel, in addition to the all-cash payout, will assume about $438m of future contractual liabilities.
Additionally, Southwestern said it will transfer certain of its natural gas hedge positions to Flywheel or will put in place on behalf of the buyer.
Flywheel CEO Justin Cope said: “We believe this is another great step as we work to execute our long term strategy and achieve superior risk-adjusted returns for our investors.”
Kayne Private Energy Income Funds managing partner Danny Weingeist said: “Southwestern’s Fayetteville assets are an ideal fit for our Funds’ strategy, generating significant free cash flow through low-risk, legacy natural gas production.”
Subject to customary regulatory and other approvals, the deal is expected to close in the fourth quarter of this year.