Chesapeake Energy will pay $2.3 billion to acquire gas reserves in Appalachian basin
Chesapeake Energy Corp. has taken steps toward becoming one of the largest gas producers in North America. On Oct. 3, the Oklahoma City-based company agreed to buy Columbia Natural Resources LLC (CNR), which has an estimated 2.5 tcf of proved, probable, and possible natural gas reserves in the Appalachian basin.
The purchase price is about $2.2 billion in cash plus the assumption of liabilities related to CNR’s prepaid sales agreements and hedging positions (estimated at $775 million using gas prices as of Sept. 30) and an additional $75 million in debt and other liabilities. Chesapeake expects to finance the acquisition with cash and a combination of senior notes and equity securities.
The move would catapult Chesapeake ahead of several of its rivals. The company currently ranks 15th on the OGJ200 list of publicly traded US oil and gas producers with just under $10.7 billion in assets. Chesapeake has consistently been ranked as one of the fastest-growing domestic energy companies.
CNR and its parent, Triana Energy Holdings LLC, are both private companies headquartered in Charleston, West Va. CNR operates more than 8,200 wells throughout the Appalachian basin, including 3,500 in West Virginia, accounting for about 10 percent of the region’s production. The company has operations in West Virginia, Kentucky, Virginia, Tennessee, New York, Ohio, Pennsylvania, Michigan, and Maryland.
CNR also operates more than 6,400 miles of gathering pipelines that serve another 200 Appalachian producers in Kentucky, Ohio, Virginia, and West Virginia.
CNR, which operates 93 percent of its wells with an average working interest of 94 percent, claims to be the second-largest independent natural gas producer in the Appalachian basin and the 25th-largest in the US. Triana purchased the company (previously named Columbia Energy Resources) from NiSource Inc., an Indiana-based utility, in 2003.
Chesapeake says it plans to spend about $200 million per year developing CNR’s properties. Most of the company’s current properties are onshore in Oklahoma, Kansas, and Texas.
On Oct. 4, Standard & Poor’s Ratings Services affirmed Chesapeake’s BB/B-1 corporate credit rating and said the outlook is stable. Chesapeake has about $4.3 billion in debt outstanding, according to S&P.
“We expect Chesapeake to finance the CNR acquisition using the company’s general 50 percent debt, 50 percent equity philosophy,” said S&P credit analyst David Lundberg. “Any significant deviance from that philosophy could prompt a negative rating action.”
The vast majority (99 percent) of CNR proved reserves are natural gas and these are 70 percent developed, according to company sources.
The acquisition is expected to close in December, subject to meeting the Hart-Scott-Rodino requirements. OGFJ
