Chesapeake Energy Corp. on Tuesday snapped up a batch of natural gas-rich Marcellus Shale assets with a $2 billion-plus takeover of Chief E&D Holdings LP and affiliates of Tug Hill Inc.
According to the Oklahoma City-based independent, pro forma natural production capacity could increase by up to 200 MMcf/d. The transaction, set for completion by the end of March, also may expand undeveloped locations by around 25% and expand the drilling inventory by more than 15 years at current activity levels.
Chesapeake agreed to pay a total of $2 billion cash and trade 9.44 million shares. The company was trading above $61.00/share early Tuesday. To help pay for the transaction, the Powder River Basin (PRB) portfolio in Wyoming is being sold to Continental Resources Inc. for $450 million.
These “transformative transactions…meet the high bar set by our acquisition nonnegotiables and clarify our portfolio,” CEO Nick Dell’Osso said. “We know the importance of scale, and the Chief and Tug Hill assets fit like a glove with our existing position in the Northeast Marcellus Shale.
“The acquisition checks all the boxes.” The Marcellus deal expands the inventory and provides operational efficiencies, as well as improving the “greenhouse gas emissions metrics,” he said.
“In less than a year, we have achieved our goal of refocusing and high-grading our portfolio around our core assets, positioning us to generate meaningful returns for shareholders today while embracing lower carbon energy production for tomorrow.
“Having centered Chesapeake around our highest performing assets, our team can now integrate these assets into our portfolio, achieve the valuable synergies available to us and enhance cash flows through executing our business.”
Once the transactions are completed, Chesapeake would be a three-basin producer, with assets in the Eagle Ford, Haynesville and Marcellus shales.
Under the terms of the agreements, unanimously approved by all the principals, Chesapeake is acquiring 113,000 net acres that are more than 90% held by production. Assuming the deal closes by April 1, the assets are projected to produce 835 MMcf/d net for nine months in 2022.
The company’s Powder River Basin assets include 172,000 net acres and 350 operated wells in southeastern Wyoming. In the final three months of 2021, volumes averaged around 19,000 boe/d, 58% weighted to oil and liquids.
After the transactions are completed, Chesapeake this year plans to add another two rigs on the acquired Marcellus properties. That would result in up to 11 gas-focused and up to three oil-focused rigs working the Marcellus.
Tudor, Pickering, Holt & Co. (TPH) said there was “still quite a bit to work through before coming to a conclusion on the merits of the deal.” The cash-and-stock deal “implies $2.6 billion of total outlay…
“We’ll still need to go through our own modeling of the transaction, but per Chesapeake management, the deal is expected to increase cumulative free cash flow over the next five years to $9 billion from previous guidance of $6 billion…with synergies of $50-70 million annually.”
Because of “broadening investor concerns on the gas macro backdrop, particularly in 2023, we think clients will be keenly focused on how the company approaches hedging associated with this acquisition.”
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