Chesapeake Energy Corporation announced significant transactions designed to strengthen its asset portfolio, deliver higher free cash flow, and increase its projected annual dividend payments.
The company signed definitive agreements to acquire Chief E&D Holdings and associated non-operated interests held by affiliates of Tug Hill for $2.0 billion in cash and approximately 9.44 million common shares.
Chief and Tug Hill hold high quality producing assets and an inventory of premium drilling locations in the prolific Marcellus Shale in Northeast Pennsylvania.
The cash portion of the transaction will be financed with cash on hand and the use of the company's revolving credit facility.
The transaction, which is subject to customary closing conditions, including certain regulatory approvals, is expected to close by the end of the first quarter of 2022.
Chesapeake also signed an agreement to sell its Powder River Basin assets in Wyoming to Continental Resources for approximately $450 million in cash. The transaction, which is subject to certain customary closing conditions, is expected to close in the first quarter of 2022.
At closing, net proceeds from the sale will go toward the purchase price of the Chief acquisition.
Highlights:
Optimizes Chesapeake's portfolio, focusing people and capital allocation on the company's core assets
Immediately accretive to production, operating cash flow per share, free cash flow per share, free cash flow yield and GHG emissions profile
Increases cumulative five-year free cash flow outlook to more than $9 billion at today's commodity strip prices; portfolio to generate approximately 75% of 2022 projected cash flow from natural gas assets and 25% from oil assets, post closing of transactions
Preserves Chesapeake's balance sheet strength, with an estimated 2022 pro forma net debt-to-EBITDAX(2) ratio of approximately 0.8x using current commodity strip prices
Expected to increase annual base dividend by approximately 14% from $1.75 to $2.00 per share beginning in the second quarter of 2022, reflecting the cash flow accretion of transaction
Company maintains $1 billion common stock and warrant repurchase program which is expected to be executed by the end of 2023
Strengthens Chesapeake's Marcellus position, growing premium undeveloped locations(1) by approximately 25% and extending drilling inventory to more than 15 years at current activity levels
Increases pro forma Marcellus Shale production capacity by up to 200 million cubic feet (mmcf) of gas per day, when compared to stand-alone companies combined, through the optimization of shared midstream assets
$50 to $70 million of annual synergies expected to be recognized
Highly capital efficient acquisition, anticipate maintaining acquired production of 800 – 900 mmcf per day with 1 – 2 rigs over the next several years, enhancing sustainable cash returns to shareholders
Transaction consistent with Chesapeake's acquisition non-negotiables of not overpaying, protecting the balance sheet, being accretive to key financial and environmental metrics, and making the company better, not just bigger. ■