Big Fish Eat Smaller Fish in Appalachia: More Consolidation Expected in 2022

Chesapeake Energy Corp. will get a discount on Chief Oil & Gas LLC if it comes to fruition with a rumored $2.4 billion deal for the private drill Marcellus Shale which continuing a consolidation trend in Appalachian shale gas operations.

Citing unnamed sources, Reuters reported on Jan. 19 that Chesapeake was finalizing a deal for Chief, Chesapeake’s neighbor in the northeast Pennsylvania dry gas window and one of four Marcellus drillers being considered. as prime takeover targets.

The chef did not comment on the news and Chesapeake did not respond to inquiries. But analysts said the potential deal has upsides for Chesapeake.

“We believe this deal is more likely with the valuation resetting from over $3.0 billion in October to $2.4 billion,” said veteran shale gas analyst Gabriele Sorbara, chief executive of boutique investment services firm Siebert Williams Shank & Co.

In October 2021, Reuters reported that Chief was marketing its assets, consisting of just over 1 Bcf/d of production from 450 active wells in five counties, for $3 billion.

“Given the quality of the assets in chief, we do not view this potential deal as a major concern as it is expected to be accretive to free cash flow and capital returns at the correct valuation,” Sorbara said in a statement. January 20 email, noting that Chesapeake is already a non-operating partner in some of Chief’s wells. “That said, this chatter around M&A will weigh more on stocks.”

Chesapeake shares fell 4% on Jan. 20 in heavier-than-normal trading in a bear market.

“Assuming the deal is confirmed, it appears Chesapeake lost to EQT Corp. on the $3 billion [Alta Resources LLC] deal and didn’t want to miss the last real opportunity for consolidation in northeast Pennsylvania,” said Charles Johnston, senior analyst at credit research firm CreditSights. the Marcellus.”

At the start of the year, CreditSights predicted that shale oil and gas mergers and acquisitions would continue in 2022, with operators buying up their neighbors. Shale oil and gas stocks have posted substantial gains over the past year, making the company’s stock a viable currency and reducing the amount of money that needs to be borrowed to fund a transaction.

EQT has purchased the southwestern Pennsylvania operations of Chevron Corp. in 2020. In the same year, northern Pennsylvania operator National Fuel Gas Co. bought Royal Dutch Shell PLC’s operations along the New York border, and Southwestern Energy Co. bought shale driller Marcellus and Utica Montage Resources Corp.

“Deals are increasing in size with a greater focus on consolidating around a core asset base rather than expanding into new areas of growth,” CreditSights said Jan. 4. “Energy M&A has also been balance sheet supportive, with the vast majority of deals fully or largely) equity-funded and accretive to credit profiles. In a slower-growing world, consolidation lowers costs , improves scale and increases operator efficiency with larger blocks of contiguous area for upstream players.

The five largest producers in Pennsylvania – EQT, Chesapeake, Coterra Energy Inc., Range Resources Corp. and Southwestern – account for about three-quarters of the state’s shale gas production.

Founded in 1994, Chief is still led by its founder, chairman and CEO Trevor Rees-Jones, a former oil and gas lawyer. He began drilling unconventional wells in the Barnett Shale in Texas and moved to Marcellus after selling his Barnett assets to Devon Energy Corp. for $2.2 billion in 2006. Currently, Chief operates a rig on its lease in Lycoming, Bradford, northeastern Pennsylvania Sullivan, Susquehanna and Wyoming counties.

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