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    Chesapeake strengthens portfolio with $2.4bn Chief acquisition

Summary

Chesapeake swaps out Powder River assets for more Marcellus Shale

by: Maureen McCall

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Complimentary, Natural Gas & LNG News, Americas, Corporate, Mergers & Acquisitions, News By Country, United States

Chesapeake strengthens portfolio with $2.4bn Chief acquisition

US unconventional gas producer Chesapeake Energy said January 25 it had signed definitive agreements to acquire Chief E&D Holdings and associated, non-operated interests held by affiliates of privately-held Tug Hill in a cash and share deal worth about $2.4bn.

The acquisition, for $2bn in cash and about 9.44mn Chesapeake shares, includes 113,000 net acres (45,700 net ha) in the Marcellus shale region of northeast Pennsylvania producing about 835mn ft3/day of natural gas and should close by the end of Q1 2022.

Chesapeake also signed a separate agreement to sell its Powder River Basin assets in Wyoming to Continental Resources in a cash deal worth about US$450mn, also expected to close by the end of Q1. Net proceeds will be applied to the cash portion of the Chief acquisition.

The Chief acquisition increases Chesapeake’s cumulative five-year free cash flow outlook to more than US$9bn at today's commodity strip prices, with the portfolio expected to generate approximately 75% of 2022 projected cash flow from natural gas assets.

"We're pleased to announce concurrent, transformative transactions that meet the high bar set by our acquisition non-negotiables and clarify our portfolio, allowing our talented team to focus on our highest rate of return assets," Chesapeake 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 deal increases the Chesapeake's pro forma Marcellus Shale production capacity by up to 200mn ft3/d of gas through the optimisation of shared midstream assets. The company expects to maintain the acquired production at 800-900mn ft3/d with 1-2 rigs over the next several years.

The acquisition and sale come less than a year after Chesapeake’s emergence from bankruptcy protection.

"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," Dell’Osso said. "Having centred 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."