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Chesapeake acquisition and divestment to simplify its asset portfolio


Chesapeake Energy this week 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 and associated non-operated interests held by affiliates of Tug Hill, Inc., 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(1) 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, Inc. (NYSE:CLR) 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.


  • 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(2) 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 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

(1) Greater than 50% rates of return at $2.50 NYMEX gas.

Nick Dell'Osso, Chesapeake's President and Chief Executive Officer, said, 
"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. 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 acquisition checks all the boxes: it lengthens our premium inventory, further focuses our capital allocation, provides operational efficiencies, is accretive to free cash flow per share, allows us to grow our base dividend, preserves our balance sheet strength and improves our GHG emissions metrics."

"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. Having centered 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. Upon closing of these transactions, Chesapeake will benefit from a high-quality portfolio focused on three premier U.S. hydrocarbon basins – the Marcellus, Haynesville, and Eagle Ford. By combining the great rock and scale of these premium assets, with our disciplined capital investment strategy and narrower, more logical focus, we are in a better position to enhance returns and build sustainable value for our shareholders. I would like to thank our employees who helped us advance the Powder River asset and further position Chesapeake as a responsible provider of reliable, affordable, and low carbon energy."

Under the terms of the Chief and Tug Hill agreements, which were unanimously approved by Chesapeake's Board of Directors and also approved by Chief and Tug Hill, Chesapeake will acquire approximately 113,000 net Marcellus acres (>90% held by production). Assuming an April 1, 2022 closing date, the asset is currently projected to produce approximately 835 million cubic feet of net gas per day for nine months in 2022 and generate about $500 million in 2022 projected adjusted EBITDAX (including acquired hedges) at current commodity strip prices.

The company's Powder River Basin assets include approximately 172,000 net acres and 350 operated wells in southeastern Wyoming. Fourth quarter 2021 Powder River Basin volumes are expected to average approximately 19,000 barrels of oil equivalent per day, approximately 58% of which was crude oil and natural gas liquids.

Preliminary 2022 Pro Forma Outlook

Upon closing of the transactions, Chesapeake plans to operate two rigs on the acquired properties during 2022, resulting in a total of 9 – 11 gas-focused rigs and 2 – 3 oil-focused rigs. The company will maintain a disciplined capital reinvestment strategy, anticipating a 2022 reinvestment rate of approximately 47%. At current commodity strip prices, this preliminary capital program is anticipated to generate $3.4 – $3.6 billion in total adjusted EBITDAX.

KeyFacts Energy: Chesapeake Energy US onshore country profile     KeyFacts Energy: Acquisitions & Mergers news

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