Leading Haynesville basin producer Comstock Resources is in discussions to buy the Haynesville assets of Chesapeake Energy in Louisiana, Reuters reported on Wednesday, citing people with knowledge of the talks, a week after Chesapeake warned that it may not be able to service its debt if low prices persist.
Chesapeake and Comstock Resources of Dallas Cowboys owner Jerry Jones have hammered out a basic structure for the potential deal that could be valued at more than US$1 billion, according to Reuters’ sources. The companies could settle on a deal by the end of this year, the sources said, noting that the talks don’t guarantee that an agreement will be reached.
Comstock Resources has been amassing assets in Haynesville in recent months, while Chesapeake Energy warned last week that its ability to comply with the covenants under its revolving credit facilities and other indebtedness could impact its ability to continue as a going concern.
In a SEC filing, Chesapeake said that “If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern.” Related: The EIA Is Grossly Overestimating U.S. Shale
Chesapeake also said that it is slashing its 2020 capital expenditure forecast by around 30 percent, and expects to reduce 2020 production and general and administrative expenses by some 10 percent. The company, which helped propel the shale gas revolution in the late 2000s, said it has released its operated rigs and completion crews in the Haynesville Shale for the rest of the year.
After the warning, Chesapeake’s shares tumbled last week and continued to slump through Tuesday, when the stock price dropped to a 25-year-low.
Commenting on the market volatility, Chesapeake’s CEO Doug Lawler said in a statement on Tuesday:
“We continue to pursue strategic levers to reduce debt, including asset sales, capital markets transactions, and focus on cost discipline.”
Comstock Resources, for its part, became in June the Haynesville Basin leader after buying privately held natural gas firm Covey Park Energy in a cash and stock deal valued at US$2.2 billion, including the assumption of Covey Park’s outstanding debt.
By Tsvetana Paraskova for Oilprice.com
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