Chesapeake Energy Corp. announced after the markets closed Tuesday that it executed an agreement to sell a portion of its remaining Eagle Ford assets to Ineos Energy for $1.4 billion.
The company will shed 172,000 net acres and 2,300 wells in the black oil portion of its Eagle Ford asset primarily in Dimmit, LaSalle and McMullen counties, along with related property, plant and equipment.
In the fourth quarter, average net daily production from the properties was 36,000 barrels of oil equivalent, of which 81 percent was liquid. As of Dec. 31, net proved reserves were 144 million barrels of oil equivalent.
Chesapeake expects the transaction will close in the second quarter, when it will receive $1.175 billion. The additional $225 million will paid in annual installments of $56.25 million.
Chesapeake anticipates the proceeds will be applied to repay borrowings under its revolving credit facility and be available for its share repurchase program.
RBC Capital Markets, Citi and Evercore were financial advisors to Chesapeake, which used Haynes and Boone as outside counsel led by Houston partner Jeremy Kennedy. He had help from partners Kraig Grahmann, Stephen Grant, Brandon McCoy and Mary Mendoza, counsel Ed Lebow (Washington, D.C.) and associates John Craven, Will Johnson, Bilal Sheriff and Colin Cox.
Ineos tapped partner Debra Villarreal of Holland & Knight in Dallas. She was assisted by partners Brooke Sizer, John Dierking (Orlando), Tony Campiti, Neely Munnerlyn, Ashley Phillips, Brandon Bloom and Antonia Tzinova (Washington, D.C.) and associates Aaron Powell, Braedon Morrow, Anna Boyer, Jessica Kirk and Leslie Reynolds.
Chesapeake president and CEO Nick Dell’Osso said in a statement the move marks another important step on its path to exiting the Eagle Ford as it focuses its capital on the “premium rock, returns and runway” of its Marcellus and Haynesville positions.
“We are pleased to have secured an aggregate of $2.825 billion to date and remain actively engaged with other parties regarding the rest of our Eagle Ford position,” he said.
Matt Portillo, who follows Chesapeake for TPH, said in a note it’s good to see second package exiting the portfolio, with progress on divestitures continuing to track his expectations.
“We see potential for remaining package, if aligned on valuation with the prior two, to bring total divestures toward or above the high end of our $3 billion to $3.5 billion estimate,” he writes.
With both transactions expected to close in the coming months, he said Chesapeake is now “cashed up,” leaving the company flexibility to pay down its $1 billion revolver while covering the remaining $930 million of its authorized buyback in 2023 in addition to further shareholder returns driven by free cash flow.
London-based Ineos said the deal marks its entry as operator into the U.S. onshore oil and gas market.
The company said the addition of Chesapeake’s assets and operations in south Texas is part of its strategy to build a global integrated portfolio “fit for the energy transition,” offering solutions to its customers.
“Over the last two decades, U.S. onshore oil and gas production has provided security of supply for the global market and competitive advantage for U.S. industry,” Ineos Energy chairman Brian Gilvary said. “We believe this acquisition will help us to serve our internal and external customers today as we continue to position our business to meet the energy transition.”
Ineos is part of a consortium of 11 companies that support the large-scale deployment of carbon capture and storage technology in Houston, where the goal is to capture and store up to 50 million metric tons of carbon dioxide per year by 2030 and about 100 million metric tons by 2040.
Ineos is involved also in several projects to develop demand for hydrogen. The company has pledged to reduce its carbon footprint and achieve net-zero emissions by 2050.
The company was formed in 1998 by British billionaire Sir Jim Ratcliffe, a former Advent International executive, who scooped up the chemical businesses from Inspec, BP, ICI and BASF and others.