Chesapeake Energy Completes Acquisition of Chief, Tug Hill Affiliates

Chesapeake Energy Corp. on March 9 completed its previously announced multibillion-dollar acquisition of Chief E&D Holdings, LP and associated nonoperated interests held by affiliates of Tug Hill Inc.

“The Chief transaction deepens our premium inventory, allowing us to allocate additional capital toward our world class Marcellus Shale position and accelerate returns for our shareholders,” Nick Dell’Osso, Chesapeake’s president and CEO, commented in a company release.

“With the integration of these assets into our existing portfolio,” Dell’Osso continued, “we look forward to generating greater free cash flow, growing our dividend programs, and improving our GHG emissions metrics as we continue to responsibly deliver reliable, affordable, lower carbon energy in 2022 and beyond.”

On Jan. 25, Chesapeake Energy flipped the script on its story when, in a single move, the company announced the purchase of private Marcellus operator Chief Oil & Gas alongside an exit from the Powder River Basin, ultimately refocusing its portfolio mainly on shale gas after years spent trying to diversify into oil.

According to the transaction agreement, Chesapeake acquired privately held Chief Oil & Gas and associated nonoperated interests held by affiliates of Tug Hill for $2 billion in cash and approximately 9.44 million common shares. Analysts with Tudor, Pickering, Holt & Co. (TPH) estimate the cash-and-stock deal structure implies a roughly $2.6 billion total price tag.

Additionally, Chesapeake also announced on Jan. 25 an agreement to sell its Powder River Basin assets in Wyoming to Continental Resources Inc. for $450 million in cash. The Powder River transaction is expected to close by the end of first-quarter 2022, at which time Chesapeake’s newly simplified portfolio will include refocused positions in the Marcellus, Haynesville and Eagle Ford shale plays.

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Upon closing of the Chief transaction, Chesapeake said in January that it planned to operate two rigs on the acquired Marcellus properties during 2022, resulting in a total of nine to 11 gas-focused rigs and two to three oil-focused rigs.

For the Chief acquisitions, RBC Capital Markets is financial adviser to Chesapeake. Shearman & Sterling LLP is serving as its legal adviser and DrivePath Advisors is its communications adviser.

J.P. Morgan Securities LLC is financial adviser and Gibson, Dunn & Crutcher LLP is legal adviser to Chief and Tug Hill. Akin Gump Strauss Hauer & Feld LLP is also serving as legal adviser to Tug Hill and its affiliates.