Chesapeake to Acquire Vine Energy in $2.2 Billion Deal

Chesapeake Energy Corporation is making another big move as it announced Wednesday that the Oklahoma City-based energy company will acquire Vine Energy Inc. in a deal valued at $2.2 billion.

Vine, based in Plano, Texas, is an energy company focused on the development of natural gas properties in the over-pressured stacked Haynesville and Mid-Bossier shale plays in Northwest Louisiana.

Chesapeake will benefit from this transaction by realizing approximately $50 million in average annual savings expected from operating and capital synergies. The deal is also expected to increase the base dividend by 27% to $1.75 per share post close reflecting cash flow accretion of transaction, subject to Board approval. Chesapeake’s pro forma total gathering, processing and transportation (GP&T) expense is lowered by approximately 15% and diversifies the company’s midstream partnerships.

“This transaction strengthens Chesapeake’s competitive position, meaningfully increasing our free cash flow outlook and deepening our inventory of premium gas locations, while preserving the strength of our balance sheet,” said Mike Wichterich, Chesapeake’s Board Chairman and Interim Chief Executive Officer. “By consolidating the Haynesville, Chesapeake has the scale and operating expertise to quickly become the dominant supplier of responsibly sourced gas to premium markets in the Gulf Coast and abroad.”

“We firmly believe that the quality of our assets, combined with the scale, depth and diversity of Chesapeake’s portfolio, and our shared unwavering commitment to ESG excellence, provides significant opportunity to accelerate the return of capital to our combined shareholders,” said Eric Marsh, Vine’s Chairman, President, and Chief Executive Officer.

Under the terms of the merger agreement, which was unanimously approved by the Board of Directors of each company, Vine shareholders will receive a fixed exchange ratio of 0.2486 Chesapeake shares of common stock and $1.20 of cash for each share of Vine common stock owned. Upon closing, Chesapeake shareholders will own approximately 86% and Vine shareholders will own approximately 14% of the fully diluted shares of the combined company, according to the press release.

The transaction is subject to regulatory approvals, customary closing conditions and the approval of Vine shareholders. The deal is expected to close in the fourth quarter of 2021.

Pending the successful closing of the transaction in the fourth quarter of 2021, Chesapeake’s preliminary plan is to operate 10-12 rigs in 2022, with 8-9 rigs focused on its gas portfolio and 2-3 rigs concentrating on its oil assets. The company will maintain its commitment to a disciplined capital reinvestment strategy, anticipating a 2022 reinvestment rate of 50-60%.

Following completion of the transaction, Chesapeake expects to raise its base dividend by 27% to $1.75 per share as a result of the significant increase in free cash flow which reaches approximately $6 billion over the next five years. Additionally, Chesapeake announced the establishment of a variable return program to deliver 50% of the previous quarter’s free cash flow to investors in cash, payable the following quarter, and beginning with results from the 2021 fourth quarter.

 

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