[Editor's note: This story has been updated to include additional information.]

Chesapeake Energy Corp. (NYSE: CHK) found a taker for its Barnett Shale operating area in North Texas in a deal that the company says will cast off billions of dollars in future expenses, it said Aug. 10.

Chesapeake said it conveyed the acreage to Dallas-based Saddle Barnett Resources LLC, a company backed by First Reserve. The company did not disclose the amount of the transaction, instead focusing on the benefits it would reap in no longer being beholden to the Barnett.

Chesapeake grew up with and ultimately outgrew the Barnett, which fell by the wayside as more productive and economic shale plays were exploited.

Chesapeake said exiting the Barnett would boost its operating income, before charges and other termination costs— potential increases of $200 million to $300 million per year from 2016 through 2019.

Chesapeake and Williams Partners (NYSE: WPZ) also agreed to terminate their current gathering agreement. Chesapeake expects to pay $334 million in cash to Williams, with Saddle Resources expected to pay an additional amount.

Chesapeake also said it renegotiated its gas gathering agreement with Williams in its Midcontinent operating area in exchange for a payment of $66 million.

The deal:

  • Reduces the company’s remaining 2016 gathering, processing and transportation (GP&T) expenses by about $250 million, including $170 million for a projected minimum volume commitment (MVC) shortfall payment;
  • Reduces projected 2017 GP&T expenses by about $465 million, including $230 million of projected MVC shortfall payments;
  • Eliminates future Barnett Shale midstream and downstream commitments of about $1.9 billion; and
  • Increases the PV-10 of the company's total proved reserves by approximately $550 million after removal of Barnett assets and the associated projected MVC shortfall payments.

Separately, Chesapeake accelerated the value of a gas supply contract by selling its rights under a long-term gas supply agreement for $146 million in cash proceeds.

Chesapeake CEO Doug Lawler said the agreement would mark a major step in the company’s continued transformation.

“Given the significant negative cash flow profile of the Barnett assets, the net cash paid out in these transactions has a payback of less than 18 months, and it will be partially funded by the $146 million sale and assignment of our long-term gas supply contract,” Lawler said.

Lawler said the company is focused on its 1.5 million net acreage position in the Midcontinent.

“The new gas gathering agreement makes our operations more competitive and enhances the operating income from this asset," he said.

In 2016, Chesapeake has divested about $1 billion in assets and plans to sell another $550 million. The company said Aug. 4 it will auction about 150,000 of its 430,000 Haynesville acres, Wells Fargo said.

The Barnett transaction is subject to a number of closing conditions, including the receipt of third-party consents, and is expected to close in the third quarter of 2016.

This is a breaking news story. Check back for updates.

Darren Barbee can be reached at dbarbee@hartenergy.com.