Chesapeake To Acquire Vine Energy

Chesapeake Energy Corporation Consolidates Haynesville With At- Market Acquisition Of Vine Energy Inc.

OKLAHOMA CITY, Aug. 11, 2021 /PRNewswire/ -- Chesapeake Energy Corporation (NASDAQ:CHK) ("Chesapeake") and Vine Energy Inc. (NYSE:VEI) ("Vine") today announced that they have entered into a definitive agreement pursuant to which Chesapeake will acquire Vine, 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. The acquisition is a zero premium transaction valued at approximately $2.2 billion, based on a 30-day average exchange ratio as of Tuesday's close, equating to $15.00 per share.

Transaction highlights include: 

  • Vine shareholders will receive fixed consideration of 0.2486 shares of Chesapeake common stock plus $1.20 cash per share of Vine common stock, for total consideration of $15.00 per share, comprising of 92% stock and 8% cash
  • Increases Chesapeake's cumulative five-year free cash flow(1) outlook by approximately $1.5 billion, or 68% of the transaction value, to approximately $6.0 billion, or 66% of pro forma enterprise value
  • Immediately accretive to operating cash flow per share, free cash flow(1) per share, free cash flow yield(1), and GHG emissions profile
  • 2022 pro forma net debt-to-EBITDAX(1) ratio of 0.6x, preserves Chesapeake's balance sheet strength
  • Approximately $50 million in average annual savings expected from operating and capital synergies
  • Expected to increase base dividend by 27% to $1.75 per share post close reflecting cash flow accretion of transaction, subject to Board approval
  • Vine position consolidates Haynesville/Bossier adding approximately 370 premium 50% rate of return drilling locations at $2.50 NYMEX gas price
  • Lowers Chesapeake's pro forma total gathering, processing and transportation (GP&T) expense by approximately 15% and diversifies the company's midstream partnerships

(1)  Non-GAAP financial measures defined below.

Mike Wichterich, Chesapeake's Board Chairman and Interim Chief Executive Officer, commented, "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. 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."

Eric Marsh, Vine's Chairman, President, and Chief Executive Officer said, "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."

David Foley, Global Head of Blackstone Energy Partners added, "We believe in the benefits of consolidation. Blackstone looks forward to being a Chesapeake shareholder and participating fully in the significant value creation potential that will be unlocked by the combined company."

Transaction Details

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.

The transaction, which is subject to customary closing conditions, including certain regulatory approvals, and the approval of Vine shareholders, is expected to close in the fourth quarter of 2021. Funds managed by The Blackstone Group Inc. own approximately 70% of outstanding shares of Vine common stock and have entered into a support agreement to vote in favor of the transaction.

Preliminary 2022 Pro Forma Outlook

Pending the successful closing of the transaction in the fourth quarter of 2021, Chesapeake's preliminary plan is to operate 10 to 12 rigs in 2022, with 8 to 9 rigs focused on its gas portfolio and 2 to 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%. At NYMEX strip pricing as of July 30, 2021, this preliminary capital program is anticipated to generate between $2.55 billion to $2.75 billion in total adjusted EBITDAX. Chesapeake also anticipates this preliminary capital program will result in its average annual 2022 oil production remaining flat from 2021 fourth quarter average levels. 

Updated 2021E – Preliminary 2022E Outlook (2)

2021E CHK
Previous

2021E CHK
8/10/21

2022E CHK

2022E CHK
Pro Forma

Oil Production (mmbbl)

23.0 – 25.0

23.5 – 25.5

20 – 22

20 – 22

Gas Production (bcf)

715 – 735

725 – 745

750 – 775

1,095 – 1,125

Total Production (mboe/d)

410 – 420

415 – 435

415 – 435

575 – 595

LOE per boe

$1.85 – $2.15

$1.85 – $2.15

$1.85 – $2.15

$1.65 – $1.95

GP&T per boe

$4.90 – $5.40

$4.90 – $5.40

$4.70 – $5.20

$3.90 – $4.40

G&A per boe

$0.85 – $1.15

$0.75 – $0.95

$0.75 – $0.95

$0.55 – $0.75

Adjusted EBITDAX(3) ($B)

$1.55 – $1.65

$1.8 – $1.9

$1.85 – $2.05

$2.55 – $2.75

Total Capex ($mm)

$670 – $740

$670 – $740

$900 – $1,200

$1,300 – $1,600

Reinvestment Rate

~44%

~38%

~54%

~55%

Enterprise Value ($B)

$7.0

$9.1

Net Debt(3) ($B) (6/30/21)

$0.6

$1.7

Fully Diluted Shares (mm)

116

135

 

2022 Projected Multiples (2)

2022E CHK

2022E CHK
Pro Forma

Operating Cash Flow per Share

~$16.10

~$18.50

FCF(3) / Fully Diluted Share

~$7.10

~$7.80

FCF Yield(3)

13%

14%

Net Debt / EBITDAX(3)

0.3x

0.6x

 

(2)  Based on 7/30/21 strip prices and 8/06/21 CHK stock price.

(3)  Non-GAAP financial measures defined below.

Increasing Base Dividend and Establishing Variable Return Program

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.

Conference Call Information

Chesapeake will conduct a conference call to discuss the transaction on Wednesday, August 11, 2021 at 9:00 am EDT. The telephone number to access the conference call is 888-317-6003 or 412-317-6061 for international callers. The passcode for the call is 2789084.

About the Companies

Headquartered in Oklahoma City, Chesapeake Energy Corporation's (NASDAQ: CHK) operations are focused on discovering and responsibly developing its large and geographically diverse resource base of unconventional oil and natural gas assets onshore in the United States.

Vine Energy Inc., based in Plano, Texas, is an energy company focused on the development of natural gas properties in the stacked Haynesville and Mid-Bossier shale plays in the Haynesville Basin of Northwest Louisiana. The Company is listed on the New York Stock Exchange under the symbol "VEI".

 

 

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Replies to This Discussion

Permalink Reply by OLDDOG2020 on August 11, 2021 at 2:41

Well this freaking sucks.  CHK is horrible and I was so glad when Indigo took over my wells and I had no issues with Vine and now CHK will be taking over my wells with them.  Just when I thought I was done with CHK they pull me right back in.  

Permalink Reply by Hobbs on August 11, 2021 at 3:42

I agree, OldDog - I wish Tellurian would have taken this out first.  They are probably kicking themselves about now, unless this was not the "zero premium" transaction that CHK is representing.

Permalink Reply by OLDDOG2020 on August 11, 2021 at 3:46

Considering Vine is currently partnering with Tellurian on a well I have I agree.  I have had ZERO issues with Tellurian so I agree with your comment.  

Permalink Reply by Skip Peel - Mineral Consultant on August 11, 2021 at 3:51

I suspect that Vine was a little too big for Tellurian's pocket book but agree that would have been a good move if they could have pulled it off.

I tend to look at Chesapeake in two different ways.  Their science guys have pioneered most of the technical innovations that have served to drive down the cost to produce an mcf and increase well productivity in the Haynesville.  They drill good wells.  The other side of that coin is the C Suite decisions that disadvantage mineral lessors and UMIs.  The question that I have for Vine royalty interests after the change of operator takes place is in regard to post production deductions and how they may change.  The first one that comes to mind is "marketing charge".  I haven't looked lately but suspect that Chesapeake is still using Chesapeake Energy Marketing Inc. (CEMI) to sell their gas and take an extra cut of the revenue.

Permalink Reply by Rock Man on August 11, 2021 at 7:37

With all the recent changes in CHK both as a company and in the front office, there is a chance that we may see a "new" CHK moving forward.

Personally, I would recommend that we sit back and see how CHK performs in the coming months / years as to their operations.  

Permalink Reply by Greg Whitson on August 11, 2021 at 8:44

I thought Chesapeake was unloading wells as they sold wells to South Mansfield E&P 12/16/2020.  Was this just a shell game?  I have interest in some of those wells, but Chesapeake still sends the checks.

Permalink Reply by Skip Peel - Mineral Consultant on August 11, 2021 at 9:30

Chesapeake technically didn't sell those operated HA units so much as they traded ownership in order to restructure their gathering contract with Williams.  It was part of the bankruptcy settlement.  Chesapeake is making a big bet on natural gas going forward.  Vine, Brix and GEP Haynesville all got into the play with funding from private equity companies.  Those companies are always looking to hold an asset for as short a period of time as possible and sell for a profit.  Their business model is not to fund an operating endeavor for the long term.

Permalink Reply by Skip Peel - Mineral Consultant on August 11, 2021 at 12:39
Permalink Reply by Steve P on August 11, 2021 at 9:20

well, this may very well SUCK.  I have wells with both Vine and CHK.  I have had nothing but good performance from Vine.  While I had significant issues with CHK in the past, I was able to satisfactorily work through a very significant issue with CHK a couple of years ago.  Of course, the CHK in-house counsel and the Division Order Analyst I worked with were both laid off last Fall, and I may be back to the bad old days with CHK now.

Best I can tell, CHK has in fact, reduced the cost of operation by laying of some large per cent of their back office employees in OKC.  That's fine until you need those back office employees to help resolve an issue, one as simple as a change in ownership of a royalty interest.

Time will tell.

Permalink Reply by Skip Peel - Mineral Consultant on August 11, 2021 at 9:32

CHK also reduced their gathering costs.  See my comment above to Greg.  I'd like to know if you saw a reduction in your gathering and treating deductions on your royalty statement before and after that deal.

Permalink Reply by RONNY on August 11, 2021 at 14:47

Nothing good will happen for the royalty owner when chesapuke is involved.  They are immoral and corrupt.  Always have been, always will be. JMO based on much experience. 

Permalink Reply by Skip Peel - Mineral Consultant on August 12, 2021 at 0:36

WeissLaw LLP Investigates Vine Energy, Inc.

WeissLaw LLP   Aug 11, 2021, 19:00 ET

 

NEW YORK, Aug. 11, 2021 /PRNewswire/ -- WeissLaw LLP is investigating possible breaches of fiduciary duty and other violations of law by the board of directors of Vine Energy, Inc. ("Vine Energy" or the "Company") (NYSE: VEI) in connection with the proposed cash-and-stock acquisition of the Company by Chesapeake Energy Corporation ("Chesapeake") (NASDAQ: CHK). Under the terms of the merger agreement, Vine Energy shareholders will receive $1.20 in cash and 0.2486 shares of Chesapeake stock for each Vine Energy share they own, representing implied per-share merger consideration of approximately $15.00 based upon Chesapeake's August 10, 2021 closing price of $55.50. Upon completion of the transaction, Chesapeake shareholders will own approximately 86% and Vine shareholders will only own approximately 14% of the combined company. The transaction is valued at approximately $2.2 billion.

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