Chesapeake rebuilds on US shale patch with $2.6 billion gas deal

Chesapeake Energy, the fracking pioneer who was the most notable victim of the 2020 oil crash, is expanding again in the US shale plain less than a year after it emerged from bankruptcy.

The Oklahoma-based producer said Tuesday it would spend $2.6 billion in cash and equity to support Chief Oil & Gas, founded by Dallas billionaire Trevor Rees-Jones, and his partner Tug Hill in the northeastern portion of the fertile region. Marcellus shale field. .

Chesapeake said it also sold its Wyoming oil business to Continental Resources, controlled by shale billionaire Harold Hamm, for $450 million.

“In less than a year, we achieved our goal of refocusing and improving our portfolio around our core assets,” said Nick Dell’Osso, Chief Executive of Chesapeake, who welcomed the capture of prime assets in the US’s largest gas field.

“We know the importance of scale and Chief and Tug Hill’s assets fit our existing position in the northeast Marcellus shale,” he said.

The deals continue a consolidation trend in the US shale patch, where $66 billion in deals were announced in 2021, according to consulting firm Enverus, as a leaner, more profitable sector emerges from the ashes of the oil crash.

In November, Chesapeake completed the purchase of Vine Energy, a producer located in the Haynesville shale field in Louisiana, close to its Gulf Coast gas export facilities.

The deals rebalance Chesapeake’s portfolio to gas.

“We have come full circle in the shale region as Chesapeake returns to its gas roots,” said Andrew Gillick of Enverus, adding: “Consolidation will continue – investors like bigger companies in this inflation-driven world.”

However, Dell’Osso said it still wanted to keep oil assets and ruled out a sale of the company’s position in the liquid-producing Eagle Ford shale field in Texas.

“We believe it is valuable to have a diverse portfolio that allows us to allocate capital to oil or gas assets depending on market conditions,” Dell’Osso said in an interview. “We are determined to be part of the Eagle Ford.”

Continental’s deal to buy the oil assets in Wyoming comes as Hamm, who owns more than 80 percent of the company, strengthened its focus on U.S. oil following a new acquisition last year in Wyoming and a more recent deal in Texas.

Chesapeake said it would use the proceeds from the Wyoming sale to partially pay for the Chief’s assets. The rest comes from cash flow and $500 million borrowed through the company’s revolving credit facility.

The past two years have seen lively deals in the Marcellus, where the lack of pipeline capacity to export new gas production has prompted operators to buy rivals rather than launch new drilling campaigns.

But Dell’Osso suggested that phase may be coming to an end, as the most productive “core” portions of the Marcellus, in northeastern Pennsylvania, were now owned by just three companies: Chesapeake, EQT and Coterra, formed by the merger last year. of Cabot Oil & Gas and Cimarex Energy.

“Those three companies . . . will really dominate the game,” Dell’Osso told the Financial Times. “So I think the northeast Pennsylvania position is pretty well consolidated now.”

Chesapeake rose to fame more than a decade ago when it pioneered the shale revolution and gained a massive drilling position through debt-fueled acquisitions that for a time made the company the second-largest U.S. gas producer, after ExxonMobil.

But the gamble turned sour after natural gas prices plummeted – partly due to the surge in shale supply. Chesapeake’s colossal obligations eventually led to it filing for Chapter 11 protection in June 2020.

The Chief deal showed that the company could now expand production while remaining disciplined with capital and generating profits, Dell’Osso said.

Chesapeake said the deal would generate enough new cash flow to pay a 14 percent increase in its annual dividend from the second quarter.