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UPDATE 2-Chesapeake beefs up shale gas play with $2.5 bln Chief E&D deal

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(Adds deal details, background)

Jan 25 (Reuters) - Chesapeake Energy Corp said on Tuesday it will buy privately held oil and gas producer Chief E&D Holdings LP for about $2.5 billion expanding its position in the gas-rich shale plays of the U.S. northeast.

The acquisition by Chesapeake, a U.S. shale gas and oil producer that emerged from bankruptcy just last year, underscores the recovery of parts of the energy industry as commodity prices surge.

Reuters reported exclusively last week that Chesapeake was in advanced talks to buy Chief E&D.

Chesapeake will buy the company and some stakes held by Chief E&D's asset partner for $2 billion in cash and about 9.44 million worth of shares. That represents a deal value of about $2.6 billion, according to Reuters calculations, based on Chesapeake's last close.

Chesapeake also agreed to sell its Powder River Basin assets in Wyoming to Continental Resources Inc for about $450 million on Tuesday.

Chief E&D, founded and controlled by Texan Trevor Rees-Jones, was launched in 1994. The company operates in the Marcellus shale in northeastern Pennsylvania and has around 600,000 net acres, producing more than 1 billion cubic feet per day of natural gas.

Chesapeake has focused on natural gas production, a return to its roots as a company founded in 1989.

The sale of Chief E&D will be the latest combination of U.S. natural gas producers in the last few months. Chesapeake last year bought Vine Energy for $615 million, while EQT Corp bought Alta Resources.

The Chief E&D deal will immediately add to production and cash flow, the companies said, adding that they expect annual cost savings of $50 million to $70 million.

Chesapeake also said it plans to raise its annual dividend by about 14% from the second quarter to $2 per share. (Reporting by Arathy Somasekhar in Bengaluru; Editing by Ramakrishnan M. and Shounak Dasgupta)