Chesapeake Energy wins $ 4 billion WildHorse deal

(Reuters) – Chesapeake Energy Corp (CHK.N) agreed Tuesday to buy Texas-based oil producer WildHorse Resource Development Corp. (WRD.N) as part of a purchase and purchase transaction of close to $ 4 billion (3.1 billion pounds) which resulted in the natural gas producer's share falling by more than 12%.

Investors sanctioned the actions of oil and gas producers who signed deals this year with an increase in production instead of focusing on improving returns. Denbury Resources (DNR.N), Concho Resources (CXO.N) and Diamondback Energy (FANG.O) fell after the publication of acquisitions this year.

The shareholders of WildHorse will receive either 5,998 common shares of Chesapeake, or a combination of 5,336 shares of Chesapeake and $ 3 in cash, for each share held under the terms of the agreement.

The offer involves a premium of 21% over WildHorse's closing price on Monday, while the cash purchase and payment option represents a premium of 24%.

The agreement, which includes taking over $ 930 million of WildHorse's debt, will increase Chesapeake's outstanding stock by up to 90%, diluting existing holdings.

WildHorse shares rose 4.7% to $ 19.26, while shares in Chesapeake fell 46 cents to $ 3.26 at midday in a volatile market.

"The first reaction of investors when a company is focused on growth is to sell its shares, believing that this will push the free cash flow horizon," said Andrew Dittmar, Mergers and Acquisitions Analyst at DrillingInfo.

The acquisition is expected to give Chesapeake approximately 420,000 net acres in Eagle Ford and Austin Chalk Texas, and save between $ 200 million and $ 280 million in annual costs over the first five years, the two companies said.

Austin Chalk, which sits at the top of Eagle Ford, is currently experiencing a renaissance as oil producers deploy the technology developed in the shale boom to increase their production.

"WildHorse's complementary assets build on our current position in Eagle Ford and with our position at Powder River Basin, we have two powerful oil growth drivers in our portfolio," said Chesapeake General Manager Doug Lawler, during a phone interview.

Chesapeake has focused its capital on oil production in a context of rising crude oil prices and falling natural gas prices. This combination would reduce the company's share of petrol from 72% to 68%, said Sanford C. Bernstein analyst.

Lawler said the acquisition would allow Chesapeake to generate free cash flow "much sooner" than without the transaction. The company aims to generate free cash flow equal to costs in 2020, he said Tuesday.

The Oklahoma City-based company said its shareholders would own about 55 percent of the merged company, while the shareholders of WildHorse, including private equity firm NGP, would own the rest.

Chesapeake has announced its intention to fund the cash portion of the transaction, which is expected to be between $ 275 million and $ 400 million, through its revolving credit facility.

The Chesapeake Group, based in Oklahoma, posted a net profit of $ 60 million for the third quarter, after a loss of $ 41 million a year earlier.

Excluding non-recurring items, the company gained 19 cents per share, exceeding estimates at 15 cents, according to Refinitiv data.

Revenues went from $ 1.94 billion to $ 2.42 billion.