Almost seven months after the initial agreement, ChesapeakeEnergy Corp. announced it has completed the acquisition of GothicEnergy Corp., making it the 10th largest independent natural gasproducer in the United States. The acquisition marks theturn-around of Chesapeake, which two and a half years ago tried tosell itself due to repeated losses.

The transaction included the issuance of four million common sharesof Chesapeake to Gothic shareholders at an exchange rate of0.1908-to-one. The company will also assume about $203 million ofGothic’s 11.125% senior notes that mature in 2005. As previouslyannounced, the total acquisition cost is expected to reach $345million, or about $1.08 per Mcfe (see Daily GPI, July 5, 2000).

Chesapeake estimates the acquisition will increase the company’sreserves by about 25% to 1,600 Bcfe, and its daily production by22% to 450 MMcfe/d. Chesapeake believes that approximately 96% ofGothics assets are natural gas.

The Gothic purchase came about after Chesapeake unsuccessfully putitself on the market in July 1998 and at the end of the year realizedit was going to take a loss of almost $1 billion (see Daily GPI, July 8, 1998; March 22, 1999). The company found noprospective buyers, so it decided to seek alternative routes andrebuild.

The producers signed a definitive merger agreement in earlySeptember, and received approval from Gothic’s shareholders on Dec.12, 2000. The combined companies will retain Chesapeake’s OklahomaCity headquarters.

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