November 13, 2019 / 12:08 PM / a month ago

Exclusive: Comstock in talks to buy Chesapeake's Haynesville assets - sources

(Reuters) - Dallas Cowboys owner Jerry Jones’ Comstock Resources is in talks to buy Chesapeake Energy Corp’s Haynesville shale assets in Louisiana, according to two people familiar with the matter.

A deal could be worth more than $1 billion, one of the people said, adding that the companies have settled on a structure for the deal and hope to reach an agreement by the end of the year.

The people, who declined to be identified because the talks are confidential, said what had been agreed so far could still be subject to change and there was no guarantee the talks would conclude successfully.

Comstock and Chesapeake so far have not responded to requests for comment.

Chesapeake shares were up 8%, while Comstock shares were up 3.3% in morning trading.

Chesapeake is in dire need for money after its debt ballooned to $9.7 billion and the company which once was the second-largest U.S. natural gas producer, warned last week it may not be able to continue as a going concern.

The warning triggered a six-session slide and after its shares tumbled another 17% on Tuesday, Chesapeake said it was pursuing “strategic levers to reduce debt, including asset sales, capital markets transactions, and focus on cost discipline.”

Shares of the Oklahoma City-based company now trade at around 67 cents, compared to a peak of just below $70 in 2008.

Chesapeake’s problems are emblematic of natural gas-focused shale companies’ struggle to generate profits as a steady increase in production – much of it a byproduct of the shale oil boom – has kept prices pegged below $3.

Michael Sousoulas, financial analyst at Mercer Capital said Haynesville’s location on the Gulf Coast, a major oil and gas export hub, meant better pricing and by building up its presence in the area Comstock could generate better returns from its infrastructure.

“A consolidation of Comstock and Chesapeake acreage allows for facilitation of existing infrastructure which can create synergies, and ultimately dollars in free cash flow.”

U.S. liquefied natural gas exports are expected to rise by over 50% in 2019, according to federal energy projections, putting the country on track to become the world’s biggest LNG exporter by 2024. The United States ranked fourth in 2018 behind Qatar, Australia and Malaysia.

Jones’ Comstock became the largest operator in Haynesville after buying privately held Covey Park in a $1.1 billion deal in June.

Chesapeake has been reducing its activity in the Haynesville area and last week said it was releasing its rigs and completion crews for the rest of the year.

A deal with Comstock would see Chesapeake depart entirely from the shale region that it helped bring to prominence in 2008 with discoveries that led it to claim the area could hold 20 trillion cubic feet equivalent of potential reserves.

Instead, Chesapeake has signaled plans to boost production in its less-crowded oil-heavy Powder River Basin in Wyoming.

Comstock shares have risen 52% so far this year, while Chesapeake shares have fallen 68%.

Reporting by Arathy S Nair in Bengaluru; Editing by Tomasz Janowski and Patrick Graham

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