Chesapeake ties up Vine in cash-and-stock deal

Commenting after Chesapeake announced plans to buy Vine Energy in a cash-and-stock deal which values the Blackstone Group-controlled E&P at around US$2.2 billion, analysts from natural resources consultancy Wood Mackenzie said:  “We were confident 2021 would be a big year for Haynesville consolidation.

“This deal really picks up the pace after Southwestern Energy/Indigo just two months ago. Even though Vine has been public for less than a year, their IPO likely accelerated the entire portfolio being sold to a larger gas player.

“Vine’s underwhelming IPO earlier this year likely accelerated M&A considerations. Primary sponsor Blackstone actually had to contribute more equity into the IPO to prop up the deal and offset tepid demand for shares. Since that transaction did not provide the liquidity and exit opportunities Blackstone hoped, it was forced to consider additional exit avenues.

“Similar to Southwestern, there seems to be buyer optimism in the Bossier. It's important to separate that from the de-risked Haynesville and PDP volumes.

“We were anticipating that Chesapeake would become a little more aggressive with new leadership and refreshed financials. And moves toward RSG certification showed an updated, forward-looking strategy.

“Given those factors, we're not surprised to see the company doubling down on one of its best assets through M&A. The strategic LNG angle is another key forward-looking consideration.

“Adding Vine brings Chesapeake full circle in the Haynesville. The company sold off a large portion of its ArkLaTex portfolio in multiple deals five years ago. But now with Vine, Chesapeake will return to being the largest Haynesville producer, at over 1.5 bcfd.

“The move today adds Chesapeake to the list of companies taking a ‘basin dominance’ growth strategy. Others include Pioneer and EQT. And this is the kind of deal investors can support with confidence. The cost savings are more clearly understood.

“This deal reminds us somewhat of Concho and RSP Permian. An all-stock transaction that elevates the benchmark for basin consolidation. After Concho/RSP, other big deals followed as competitors didn't want to be left behind. What will Comstock or even Tellurian do now?”