Chesapeake doubles down on Haynesville shale gas with Vine Energy buy

(Reuters) -Chesapeake Energy Corp said on Wednesday it would buy Haynesville basin-focused rival Vine Energy Inc for $615 million, betting on the shale field’s proximity to the U.S. Gulf Coast export hub.

Dealmaking in the oil and gas sector has jumped this year as prices rebounded due to the vaccine-driven economic recovery and the Texas freeze in February.

Shale operators have also been pitching scale as a way to cut costs, with top gas producer EQT Corp recently agreeing to buy Appalachian rival Alta Resources for $2.93 billion and Southwestern Energy Co purchasing privately held Indigo Natural Resources for about $2.7 billion.

Chesapeake has offered 0.2486 shares and $1.20 in cash for each stock of Vine, implying a per-share value of $15. That represents a less than 1% premium to Vine’s last close of $14.88.

In pre-market trading on Wednesday, Vine shares were up 4.8% at $15.59 and Chesapeake was down 1.2%.

Majority-owned by Blackstone Group managed funds, Vine Energy bought Shell’s Haynesville assets in 2014 for $1.2 billion. It went public in March in a lackluster debut, ending a three-year drought of U.S. oil and gas initial public offerings.

Its purchase, which has an enterprise value of about $2.2 billion, will immediately increase Chesapeake’s cash flow and generate $50 million in average annual savings.

But it will also add $1.07 billion in long-term debt, doubling Chesapeake’s debt load just months after the company emerged from Chapter 11 bankruptcy that helped it eliminate more than $7 billion of obligations.

Chesapeake, which raised its annual production and adjusted income outlook on Tuesday after strong quarterly results, expects to increase its base dividend by 27% to $1.75 per share after the deal closes, expected in the fourth quarter.

The company plans to operate 10 to 12 rigs in 2022 and expects oil production in the year to be flat compared with the 2021 fourth-quarter levels at its preliminary capital plans.

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