HCS Energy Consulting today is studying Chesapeake’s (CHK) $3.6 billion acquisition of Wildhorse Resource Development (WRD) which was announced on October 29 and completed on January 31. When announced, the implied premium for WRD shareholders was 24% but shrunk to 7% by January 31. What has not changed (much) is the enterprise value to trailing 12 month EBITDA metric which was 5.05x on October 29, (for 12 months ended September 30, 2018) and 4.98x on January 31, setting the current valuation benchmark for an E&P company with production comprised of 73% oil. Even though the purchase price was $3.6 Billion, CHK was able to pay $3.2 Billion using equity and only had to pay $0.4 Billion in cash to acquire the 50,000 BOE/day of production plus 418,000 net acres in the Eagleford oil window. CHK plans to develop the acreage using longer laterals to reduce the drilling and completion costs per foot. What do you think?
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