A Decade After Aubrey McClendon Caught The ‘Tiger By The Tail’ — Chespeake Energy Returns To Haynesville Shale With Big Acquisition
Freshly emerged from Chapter 11 bankruptcy, Chesapeake Energy today announced a deal to acquire publicly traded Vine Energy for $2.2 billion, or $15 per share. In the deal, Chesapeake gets nearly 100,000 acres in the shale gas basin of Louisiana known as the Haynesville.
Chesapeake shares are up 1% on the deal, which interim CEO Mike Wichterich in the announcement today referred to as a “consolidation.” That term is frankly comical considering Chesapeake’s long history in the Haynesville and the many other operators there.
It was back in 2007, after Chesapeake first deployed its army of land men to acquire vast acreage in the Haynesville, that late co-founded Aubrey McClendon declared “we knew that we had a tiger by the tail.”
The Haynesville become one of the leading plays of the shale boom, ramping up to produce more than 12 billion cubic feet of natural gas per day (output has since fallen to 3 bcfd).
Chesapeake was far from the only operator in the Haynesville. During the same time Royal Dutch Shell and Encana (now Ovintiv) also acquired land in the heart of the play and entered into a joint venture.
But it wasn’t long until the bloom came off the Haynesville rose. America’s frackers were so successful in unlocking new sources of shale gas across the country, that by 2014 gas prices had fallen and the big companies were falling over each other to trade up from shale gas to shale oil.
Shell in 2014 sold its position there to Vine Energy, backed by Blackstone
Chesapeake, by then struggling under an overwhelming debt load, cut its Haynesville holdings as well. In 2015 it sold 78,000 acres with 250 wells producing 30 million cubic feet per day to Indigo Energy for $450 million, and in 2016 sold 41,500 acres with 326 wells producing 50 million cubic feet per day to Covey Park Energy for $465 million.
Pretty ironic then that five years later Chesapeake is paying more than twice as much to get back into the Haynesville. To be sure, Vine and Geosouthern have in recent years been busy drilling their acreage, and in 2018 did an asset swap that gave Vine the lion’s share of producing wells, while leaving GeoSouthern with more undrilled acreage. Vine’s production this year has averaged about 920 million cubic feet per day. All told, Chesapeake will now be the biggest Haynesville player, with roughly 1.5 billion cubic feet of daily output and hundreds of locations to drill.
Today’s deal should make Vine’s JV partners happy, establishing value for the assets held by billionaire George Bishop and GSO Capital via their GEP Haynesville venture. Bishop, 83, came onto the radar in 2013 when his Geosouthern sold its assets in the oily Eagle Ford shale to Devon Energy
And it’s also a boon to billionaire Dallas Cowboys owner Jerry Jones, who has invested $1 billion in recent years into publicly traded Comstock Resources (market cap $1.4 billion), which has more than 300,000 acres in the Haynesville region, producing 1.4 billion cubic feet per day. Another big Haynesville player is Southwestern Energy
Indeed, if Chesapeake really does intend to “consolidate” the Haynesville, there’s still a lot left to buy.