Chesapeake to buy Blackstone-controlled shale gas driller for US$2.2b

[WASHINGTON] Chesapeake Energy, the natural gas producer that emerged from bankruptcy earlier this year, agreed to acquire a rival driller controlled by Blackstone Group for about US$2.2 billion as consolidation accelerates in the US shale patch.

The cash-and-stock deal announced on Wednesday values Vine Energy, which produces gas in Louisiana's Haynesville and Mid-Bossier shale plays, at US$15 per share.

The US shale sector has been under pressure from investors to consolidate in order to achieve cost savings, boost dividends and create operators with greater scale following several years of dire financial performance. According to data compiled by Bloomberg, there has already been about 47 shale takeovers this year valued at US$50 million or more, exceeding the total for 2020.

Chesapeake exemplifies both the dramatic highs and lows experienced by shale producers during their short history. The company was at the forefront of the shale-gas boom earlier this century under the leadership of co-founder Aubrey McClendon, but racked up huge debts which, combined with a prolonged slump in gas prices, ultimately led to its bankruptcy. It exited Chapter 11 protection in February.

Vine is 70 per cent-owned by Blackstone and began trading in March after what was the first shale initial public offering since 2017. The takeover of Vine is the first deal for Mike Wichterich since he became interim chief executive officer of Oklahoma City-based Chesapeake in April.

The "strategic rationale of the deal makes sense" given the acreage footprints of both companies, which increases Chesapeake's Haynesville position, analysts at Tudor, Pickering, Holt & Co said in a note.

There were indications that Chesapeake was looking at mergers just weeks after it exited bankruptcy. It was one of the companies weighing an offer for closely held gas producer Alta Resources, Bloomberg News reported in March. Chesapeake's largest domestic rival, EQT, bought Alta in July for about US$2.9 billion.

Despite being one of the biggest US gas producers by volume, Chesapeake's market capitalisation - US$5.45 billion at Tuesday's close - is a fraction of what it was several years ago. Shale companies need to be valued at US$10 billion or more to attract more investor interest, according to both Scott Sheffield, CEO of Pioneer Natural Resources and Tudor, Pickering, Holt & Co.

Vine's shareholders will get a consideration comprising 92 per cent stock and 8 per cent cash. Like many other shale mergers over the past year, the takeover premium for Vine is zero, according to the companies, based on their average share prices over the preceding 30 days of trading.

BLOOMBERG