The acquisition will add around 420

US petroleum and natural gas explorer Chesapeake Energy has signed a $3.97bn agreement to acquire WildHorse Resource Development in order to gain a significant position in the Eagle Ford Shale and Austin Chalk formations in south-east Texas.

The transaction includes the assumption of WildHorse’s net debt of $930m and will expand Chesapeake’s oil growth platform, while also increasing cash flow.

Pursuant to the terms of the agreement, WildHorse common shareholders will receive either 5.989 shares of Chesapeake common stock or a combination of 5.336 shares of common stock and $3 in cash, for each share held by them.

“This transaction accelerates Chesapeake’s strategic plan and expands the value-creation opportunities for our shareholders.”

The acquisition comprises around 420,000 net acres in the Eagle Ford Shale and Austin Chalk formations with strategic access to premium Gulf Coast markets and will offer projected average annual savings of $200-$280m over the first five years.

Chesapeake Energy president and CEO Doug Lawler said: “This transaction accelerates Chesapeake’s strategic plan and expands the value-creation opportunities for our shareholders by adding a premier asset at an attractive valuation, significantly boosting oil production, EBITDA margins and cash flow growth, while improving our leverage metrics.

“The addition of WildHorse, together with our substantial growth profile in the Powder River Basin, advances our transformation into a highly competitive company with a diverse portfolio of high-quality assets, a stronger balance sheet and meaningful oil-growth potential.”

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The transaction will enable the company to increase its adjusted oil production to 160,000bbl/d to 170,000bbl/d in 2020.

Following the completion of the acquisition, Chesapeake and WildHorse shareholders will respectively own around 55% and 45% of the combined company.

The closure of the transaction is expected to take place in the first half of next year, and conditional on shareholder and regulatory approvals.