Deal making in the oil and gas sector has jumped this year as prices rebounded due to the vaccine-driven economic recovery. U.S. oil futures were trading down about 1.2 per cent to $67.38 a barrel on Wednesday – off from highs seen earlier this summer but about 63 per cent above year-ago levels.
Shale operators have been pitching scale as a way to cut costs, with top gas producer EQT Corp recently agreeing to buy Appalachian rival Alta Resources for $2.93-billion and Southwestern Energy Co purchasing privately held Indigo Natural Resources for about $2.7-billion.
Chesapeake has offered 0.2486 shares and $1.20 in cash for each stock of Vine, implying a per-share value of $15. That represents a less than 1 per cent premium to Vine’s last close of $14.88.
Shares of Vine were flat on Wednesday morning at $14.87 and Chesapeake was up about a half a per cent to $55.78.
Chesapeake fell into bankruptcy last year after years of overspending on acquisitions that left it burdened with debt and short on cash.
Interim Chief Executive Mike Wichterich assured investors on Wednesday that the company was not overpaying for Vine and that it remained focused on returning value to shareholders.
“We’re not going to break our balance sheet. We’re not the Chesapeake of the past,” he said during a second quarter earnings call.
The purchase, which has an enterprise value of about $2.2-billion, will immediately increase Chesapeake’s cash flow and generate $50-million in average annual savings, the company said.
But it will also add $1.07-billion in long-term debt, doubling Chesapeake’s debt load just months after the company emerged from Chapter 11 bankruptcy that helped it eliminate more than $7-billion of obligations.
Chesapeake, which raised its annual production and adjusted income outlook on Tuesday after strong quarterly results, expects to increase its base dividend by 27 per cent to $1.75 per share after the deal closes, expected in the fourth quarter.
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