Chesapeake Acquires Key Haynesville Player

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Only six months after emerging from bankruptcy, Chesapeake Energy is buying Haynesville Shale pure-play Vine Energy in a cash and stock deal valued at $2.2 billion. The deal will make Chesapeake the dominant player in the Haynesville with 348,000 net acres producing 1.5 billion cubic feet of natural gas per day. "I think this was a good move by Chesapeake," a Haynesville CEO told Energy Intelligence. "The Vine acreage is very complementary to the Chesapeake acreage and will result in many more cross-unit laterals." However, he did flag one possible pitfall. "Chesapeake may be a consolidator in the Haynesville, but they need to be careful and not get themselves over-levered, as was the case before." Legacy of Overreach A key reason the Oklahoma-based company went bankrupt in 2020 was the debt it racked up while aggressively snatching assets in the early years of the shale boom. That debt became a millstone when the oil and gas market went bust a few years later (OD Jun.30'20). Former CEO Doug Lawyer spent eight years divesting assets and paying down debt before the company sought bankruptcy protection last year as the Covid-19 collapse provided the final straw. But it had leaned up enough to emerge from Chapter 11 in February with its debt under control and focused on its prime gas assets in Appalachia and the Haynesville (OD May24'21). Some analysts were puzzled that Chesapeake’s interim CEO, Mike Wichterich, who replaced Lawler in April, would spearhead a major merger so soon, although he made clear on Tuesday that he was acting mainly as Chesapeake’s chairman of the board. "My goal here is just to help guide the company to a better place, where I think we're heading," he said during Tuesday's second-quarter earnings call. And where that leads is not in doubt, Wichterich later affirmed in a statement. "By consolidating the Haynesville, Chesapeake has the scale and operating expertise to quickly become the dominant supplier of responsibly sourced gas to premium markets in the Gulf Coast and abroad," he said. But Wichterich also made clear on the call that the company would take a renewed focus on oil drilling in its South Texas Eagle Ford Shale acreage, which had widely been viewed as ripe for divestiture. "It's really attractive to go drill down there. And we're going to do it," said Wichterich. Market Salute The overall market reaction to Chesapeake's acquisition was favorable. Both Chesapeake and Vine shares saw solid gains in Wednesday trading, with Chesapeake closing up 2.6% and Vine up nearly 2%. "The move adds Chesapeake to the list of companies taking a 'basin dominance' growth strategy," Wood Mackenzie said in a note. "Others include Pioneer and EQT. And this is the kind of deal investors can support with confidence. The cost savings are more clearly understood." Chesapeake will issue 19.1 million shares in the zero-premium deal, meaning Vine investors will be paid a set price of $15 per share, split between 0.2486 shares of Chesapeake stock and $1.20 in cash. The real payoff for Vine shareholders is becoming part a much larger company, which itself benefits from enhanced economies of scale. This includes investment giant Blackstone, which holds a controlling interest in Vine and will now have a large stake in Chesapeake. The same motivation drove the Southwestern Energy-Indigo buyout in the Haynesville a little over two months ago (OD Jun.2'21). Like that deal, the Chesapeake-Vine merger should close in the fourth quarter. Tom Haywood, Houston

Corporate Strategy , M&A
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