Chesapeake Energy acquires US shale producer Chief Oil & Gas for $2.6bn

Chesapeake Energy has boosted its position in the gas-rich Marcellus shale in north-eastern US with the acquisition of privately held producer Chief Oil & Gas for about $2.6 billion.

The company also announced that it is divesting its oil-focused assets in Wyoming’s Powder River Basin to fellow Oklahoma City independent Continental Resources for $450 million.

The deals, coming almost a year after Chesapeake emerged from bankruptcy protection proceedings, highlight the recovery under way in the US onshore sector as oil and gas prices surge.

“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,” said president and chief executive Nick Dell’Osso.

The transactions focus Chesapeake’s portfolio on the Marcellus, the Haynesville shale of north-west Louisiana and the Eagle Ford shale of south Texas.

“Having centred 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,” Dell’Osso said.

The Chief deal will immediately add to production and cash flow, according to the companies, which expect annual cost savings of $50 million to $70 million.

Scaling up for the future

Chesapeake has been involved in several merger and acquisition moves in recent months and the shift toward natural gas production is something of a return to origins for a company that was founded in 1989.

Andrew Dittmar, director at energy analytics firm Enverus, said that the deal is part of a current US onshore trend where buyers are looking to “build scale for future development while also being strongly accretive to cash flow generation out of the gate and improving greenhouse gas emissions metrics”.

The acquisition of Chief adds 835 million cubic feet of equivalent per day of production and 113,000 net acres (457 square kilometres) in the core of the northeast Marcellus to Chesapeake’s position in Pennsylvania, according to Dittmar.

Chesapeake has spent $4.8 billion on M&A expansion since the emergence of Covid, he noted.

Meanwhile, the purchase of Chesapeake’s Powder River basin assets adds reserves to Continental’s maturing Bakken asset base and capitalises on the limited opportunities to add quality oil inventory in that play. Dittmar said.

Continental picked up the Powder River assets of private Samson Resources II for $215 million in January 2021, then splashed $3.25 billion for Pioneer Natural Resources’ Delaware basin assets in November.