As anticipated, Chesapeake Energy Corp. announced Jan. 25 plans to acquire Chief E&D Holdings and associated non-operated interests held by affiliates of Tug Hill Inc. for $2 billion in cash and about 9.44 million shares.
Three law firms in Texas — Gibson Dunn, Shearman & Sterling and Akin Gump — advised on the deal.
Reuters reported last week that Chesapeake and Chief were nearing a deal after Chief was put up for sale in October amidst the surge in oil and gas prices that had boosted corporate valuations in the industry.
Chief was founded and is controlled by Dallas wildcatter Trevor Rees-Jones, who is a graduate SMU Dedman School of Law and was a successful bankruptcy lawyer at Thompson & Knight before leaving to start the company in 1994. His father Trevor Williams Rees-Jones was a long-time partner at the firm that is now known as Locke Lord.
Chief and Tug Hill hold producing assets and an inventory of drilling locations in the Marcellus Shale in northeast Pennsylvania.
Matt Portillo, an analyst at Tudor Pickering Holt, said in a note that the purchase price implies about a $2.6 billion outlay for 113,000 net Marcellus acres producing around 835 million cubic feet per day. The acreage is expected to generate $500 million of Ebitda in 2022, including hedges.
Given broadening investor concerns on natural gas prices, particularly in 2023, Portillo think clients will be keenly focused on how the company approaches hedging associated with the acquisition.
Chesapeake said the cash portion will be financed with cash on hand and use of the company’s revolving credit facility. The transaction, which must clear regulators, is expected to close by the end of the first quarter.
Chesapeake also signed an agreement to sell its Powder River Basin assets in Wyoming to Continental Resources Inc. for about $450 million in cash.
That transaction is also expected to close in the first quarter, the net proceeds going toward the purchase price of the Chief acquisition.
Gibson, Dunn & Crutcher is advising Chief led by partners Mike Darden and Jeff Chapman and including partner Gerry Spedale, counsels James Robertson and Patrick Cowherd and associates Graham Valenta, Zain Hassan and Luke Strother.
Gibson partner Michael Cannon and associate Collin Metcalf assisted on tax aspects and partner Michael Collins advised on benefits. Partner Peter Modlin from San Francisco counseled on environmental and counsel Andrew Cline from Washington, D.C., did so on antitrust.
Akin Gump Strauss Hauer & Feld counseled Tug Hill and its affiliates led by corporate partners Wes Williams and Cole Bredthauer, assisted by counsel Eduardo Canales and corporate associate Dominic Riella. Tax partner Alison Chen provided tax advice.
J.P. Morgan Securities was financial advisor to both Chief and Tug Hill. The team was led by Houston’s Mark Deverka, who earned his juris doctorate degree from Loyola University College of Law while working at Shell Oil Co.
RBC Capital Markets is financial advisor to Chesapeake on the Chief acquisition and Shearman & Sterling is outside legal advisor, including partners Jeremy Kennedy and Todd Lowther and associate John Craven in Houston. DrivePath Advisors is serving as communications advisor to Chesapeake.