Chesapeake Energy Corporation CHK concluded the purchase of the earlier announced WildHorse Resource Development Corporation in exchange for cash and stock. The deal is valued at $3 billion. Also, the company will also assume $930 million net debt of Wildhorse, taking the value to almost $4 billion.
On Jan 31, 2019, the merger was approved by Chesapeake Energy’s shareholders and WildHorse stockholders at special meetings. The consideration for each common stockholder of WildHorse was either 5.989 shares of Chesapeake common stock or a combination of 5.336 shares of Chesapeake common stock and $3.00 in cash in exchange for each share of WildHorse common stock.
Per the terms of the agreement, David W. Hayes has joined the Chesapeake Energy’s board, effective immediately. Additionally, Jay C. Graham will be appointed to fill the next vacancy.
In a separate vote in the meeting, Chesapeake Energy shareholders gave approval to alter restated certificate of incorporation to increase the number of authorized shares of common stock to 3,000,000,000 shares from 2,000,000,000 shares.
The acquisition is expected to increase Chesapeake Energy’s exposure in the Eagle Ford Shale by about 420,000 net acres, of which about 80-85% is undeveloped in the Eagle Ford Shale and Austin Chalk formations. The assets have strategic access to premium Gulf Coast markets. Chesapeake Energy also expects average annual savings of $200-$280 million, totaling $1-$1.5 billion by 2023.
The company expects the proportion of oil in total production to increase by nearly 60% from 2018 to 2020. From the company’s expected oil mix of only 19% in 2018, the proportion is likely to increase to 30% in 2020. This is expected to reduce commodity price risk and stabilize the company’s earnings and cashflows. In fact, the energy firm expects EBITDA margin per barrels of oil equivalent to rise 50% by 2020.
Zacks Rank & Key Picks
Chesapeake carries a Zacks Rank #3 (Hold).
A few better-ranked players in the energy space are Evergy, Inc EVRG, Sunoco L.P SUN and Contura Energy CTRA, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Evergy, through its operating subsidiaries Kansas City Power & Light Company (KCP&L) and Westar Energy, Inc, provides clean, safe and reliable energy in Kansas and Missouri. The company delivered average negative earnings surprise of 11.1% in the last four quarters.
Headquartered in Houston, TX, Sunoco operates as a wholesale fuel distributor. The company is expected to witness year-over-year earnings decline of 38.9% in 2018.
Bristol, U.S-based Contura Energy is a mining company. The company generated average negative surprise of 17.9% in the trailing four quarters.
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