Chesapeake Energy Corp. announced Tuesday it has made a deal worth nearly $4 billion to acquire a Houston-based drilling and production company that’s an active oil producer in the Eagle Ford Shale.
Chesapeake said it has agreed to buy WildHorse Resource Development Corp. in a deal it expects to close in mid-2019. It also reported Tuesday it earned a net income of $85 million during the third quarter.
The earnings report and purchase announcement came just a day after Chesapeake issued a notification it had completed the sale of gassier assets it held in the Utica Shale field for $1.87 billion, with plans to use that sale’s proceeds to retire $1.4 billion in senior notes that were due in 2022 and to increase drilling activity in Wyoming’sPowder River Basin.
“This (WildHorse) transaction accelerates Chesapeake’s strategic plan,” Chesapeake CEO Doug Lawler said.
“The addition of WildHorse, together with our substantial growth profile in the Powder River Basin, advances our transformation into a highly competitive company with a diverse portfolio of high-quality assets, a stronger balance sheet and meaningful oil-growth potential.”
The WildHorse deal is expected to allow Chesapeake to double its oil production by 2020 from stand-alone adjusted 2018 estimates to 160,000 to 170,000 barrels per day and will increase the mix of oil in its production from 19 to about 30 percent, the company said.
It also predicts the deal will boost its earnings per barrel of oil equivalent before taxes, depreciation and amortization by 50 percent in 2020, based on current prices.
Officials said the WildHorse transaction compliments Chesapeake’s existing Eagle Ford position, adding about 420,000 high margin net acres (about 80 percent of which is undeveloped).
Officials also said they expect the deal will generate annual savings for Chesapeake of $200 million to $280 million through operational and capital efficiencies that will come as part of the package.
The $3.98 billion deal will give WildHorse shareholders 5.989 shares of Chesapeake stock, or 5.336 shares of Chesapeake stock plus $3 in cash, for each of their WildHorse shares. Upon closing, Chesapeake shareholders will own about 55 percent of the combined company, while current WildHorse shareholders will own the remainder.
Directors on the boards of both companies have approved the deal. WildHorse Chairman and CEO Jay Graham and WildHorse director David Hayes are expected to join Chesapeake’s board once the sale is completed.
R. Brad Martin will continue to serve as Chesapeake’s chairman, and Doug Lawler will remain Chesapeake’s CEO, company officials said.
Graham welcomed the deal.
“This combination creates an impressive oil growth platform, which provides both immediate value and potential for significant long-term upside to our shareholders. As a highly regarded operator, Chesapeake brings the technical expertise and operational efficiencies needed to maximize the value of this premier asset,” Graham said.
3rd quarter results
Chesapeake reported a net income in the third quarter of $85 million, of which $60 million, or 7 cents per share, is available to shareholders.
It said third quarter adjusted net income attributable to Chesapeake was $174 million, or 19 cents per share.
Chesapeake posted $504 million in 2018 third quarter cash flow from operating activities, up 52 percent compared to the same quarter a year ago.
Per day average production of about 537,000 barrels of oil equivalent during the third quarter was about 5 percent more than what it was the same time a year ago (adjusted for asset divestitures).
Chesapeake’s third-quarter oil production climbed by 13 percent year over year, primarily driven by higher volume growth from the Powder River Basin.
The company is running five rigs in the Powder River Basin, plans to bring 15 more wells on production during the coming quarter and projects to drill and complete at least 65 wells there in 2019.
It is running four rigs in the Eagle Ford Shale, where it plans to bring 53 wells online during the fourth quarter. Officials said it plans to add a fifth rig in 2019. WildHorse also is running four rigs in that play.
In the Marcellus Shale field, it is running two rigs and expects to place 25 wells on production during the fourth quarter, while in the Haynesville Shale, it is running four rigs and expects to bring seven wells into production during the fourth quarter.
Lawler said Chesapeake continues to work toward boosting its spending on oil-related development while cutting back its activities involving its natural gas assets.
“We expect continued progress in 2019,” he said.
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