Chesapeake to buy Chief for $2.6 billion as gas deals surge

Sergio Chapa 1/25/2022

(Bloomberg) --Chesapeake Energy Corp. agreed to buy closely held Chief E&D Holdings LP and associated assets held by affiliates of Tug Hill Inc. for about $2.6 billion in cash and stock, marking its second multi-billion-dollar acquisition since emerging from bankruptcy last year.

The deal, which is expected to close by the end of the first quarter, will allow Chesapeake to increase its annual base dividend by 14% starting in the second quarter, according to a statement Tuesday. Shares rose as much as 3.7% in New York.

The company also agreed to sell its Powder River Basin assets in Wyoming to Continental Resources Inc. for approximately $450 million in cash.

The Chief purchase grows Chesapeake’s foothold in the Marcellus Shale of Pennsylvania, the largest gas play in the U.S. The country’s gas sector faces increasing pressure from investors to consolidate in a bid to scale up, cut costs and grow production without drilling new wells. But large acquisitions usually mean taking on significant debt, creating financial risks for drillers if oil and gas prices tumble.

Southwestern Energy Co. agreed to buy Indigo Natural Resources for about $2.7 billion in September, while shale giant EQT Corp. bought assets from Alta Resources in a $2.9 billion deal that closed during the third quarter.

Chesapeake has made M&A plays, too, announcing last year a $2.2 billion deal to buy rival gas driller Vine Energy Inc. The Vine and Chief deals together help the company grow output, a key management push since exiting Chapter 11 protection in February 2021.

“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,” Chesapeake Chief Executive Officer Nick Dell’Osso said in the statement.

The deal is expected to immediately increase the company’s operating and free cash flow, while growing its Marcellus gas production capacity by up to 200 million cubic feet a day. The sale of the oil-producing Wyoming assets will help fund the Chief purchase. The transaction will improve the company’s greenhouse gas emissions metrics, it said.