Chesapeake Energy to divest part of operations to PE-backed firm

April 2023 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

April 2023 Issue

Private equity-owned WildFire Energy has agreed to acquire the bulk of Chesapeake Energy’s Texas oil assets in a deal worth $1.4bn.

Chesapeake expects the transaction to close in the first quarter of 2023. The company will receive $1.2bn upon closing, subject to customary adjustments, with an additional $225m paid in yearly instalments of $60m over the next three years and $45m in year four. Chesapeake anticipates the proceeds of the sale will be used to repay borrowings under its revolving credit facility and be available for its share repurchase programme.

According to a statement announcing the deal, Chesapeake has agreed to sell roughly 60 percent of its land in the Eagle Ford basin of south Texas to Wildfire Energy, as it ditches crude production in favour of drilling for natural gas – a move which will please activist investor Kimmeridge Energy Management, which has pushed Chesapeake to move away from oil drilling in favour of low-cost natural gas production. Kimmeridge, which holds just under 2 percent of Chesapeake’s shares, accused the company of a “lack of strategic clarity” and urged it to focus on gas going forward. Future production will be concentrated in the gas-rich shale regions of the Haynesville basin in Louisiana and the Marcellus in Appalachia.

Chesapeake was a pioneer in the horizontal drilling and hydraulic fracturing techniques in shale rock that turned the US into the world’s biggest producer of hydrocarbons over the past decade. At its peak in 2008, the company was the country’s second-biggest gas producer after ExxonMobil with a market capitalisation of $35bn. The company then deepened its exposure to oil, culminating in a $4bn purchase of WildHorse Resource Development in 2018 that gave it the assets now being sold. Wildfire Energy is a reincarnation of WildHorse, with a president, chief executive and chief financial officer who held senior roles at the previous company.

“Today marks an important step on our path to exiting the Eagle Ford as we focus our capital on the premium, rock, returns and runway of our Marcellus and Haynesville positions,” said Nick Dell’Osso, president and chief executive of Chesapeake. “We remain actively engaged with other parties regarding the rest of our Eagle Ford position.”

“This acquisition is highly synergistic with our existing assets and the combined size of the overall business positions WildFire Energy as a leading operator in the Eastern Eagle Ford basin,” said Steve Habachy, president and chief operating officer of WildFire Energy. “The consolidation of 600,000 contiguous acres is transformative to the business and will drive economies of scale to deliver more high margin barrels to the advantageous Gulf Coast market.”

“We look forward to future development of the area as we continue to grow the business in a safe, efficient, and environmentally conscientious manner alongside our service providers and landowners,” said Anthony Bahr, chief executive of WildFire. “We are extremely appreciative of our sponsors, Warburg Pincus and Kayne Anderson, who have shared our vision of building strategic scale in the Eastern Eagle Ford basin and have supported us throughout the process.”

The total Eagle Ford position consists of around 610,000 net acres and was forecast to generate between 90,000 and 100,000 barrels of oil equivalent per day (boepd) in 2022 – around 15 percent of Chesapeake’s total production, according to its website.

WildFire was backed by a more than $1bn investment from Warburg and Kayne Anderson in 2019. Since then, it has built a position in the Eagle Ford producing upwards of 16,000 net boepd. The Eagle Ford deal follows WildFire’s acquisition of MD America Energy in March 2022 and the acquisition of Hawkwood Energy LLC, which began the process of consolidating the basin in August 2021.

Richard Summerfield