Newspaper article THE JOURNAL RECORD

Chesapeake to Acquire Hugoton Energy

Newspaper article THE JOURNAL RECORD

Chesapeake to Acquire Hugoton Energy

Article excerpt

In a move to boost its proved reserves, Chesapeake Energy will acquire Wichita-based Hugoton Energy in a $380 million stock and debt assumption deal.

The transaction will bolster Oklahoma City-based Chesapeake's proved reserves by more than 50 percent -- possibly offsetting the company's disappointing results in the Austin Chalk area, which prompted a $175 million writedown in June.

"There has been some anxiety because of our focus on exploration- type projects," said Tom Price Jr., Chesapeake's vice president for corporate development. "This should allay anxiety." Under the agreement announced Thursday, expected to close early next year, Chesapeake will exchange 1.3 of its shares for each of Hugoton's 20.9 million shares outstanding. The acquisition involves $275 million in a stock-for-stock exchange plus $105 million in Hugoton debt Chesapeake will assume. Hugoton shareholders will own about 26 percent of Chesapeake shares outstanding. Chesapeake reported a net loss of $183 million for the fiscal year ended June 30. Its earnings for first fiscal quarter ended Sept. 30 reflected a 33 percent decrease in net income to $5.5 million. Price said the immediate impact of the acquisition will be "earnings neutral," though the purchase will prove beneficial in the long term. "It'll significantly reduce the downside risk associated with owning Chesapeake stock," Price said. Last month, Chesapeake acquired two Oklahoma City independent oil and gas producers -- DLB and Anson -- for $193 million, with combined proven reserves of about 160 billion cubic feet of gas equivalent (Bcfe). Hugoton's proved developed reserves lie primarily in the Hugoton field in southwest Kansas, where the company owns a 500,000-acre leasehold. Hugoton also owns about 64,000 acres in the Permian region of west Texas, plus 162,000 acres in the Austin Chalk area. Seventy percent of Hugoton's reserves are in the Hugoton region. Chesapeake is currently defending 13 shareholder class actions initially filed in September in the U. …

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