Chesapeake and Southwestern $7.4bn merger creates largest US gas producer
Chesapeake shareholders to own 60% of combined company
11 January 2024 - 23:19
byArunima Kumar and Arathy Somasekhar
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Chesapeake Energy’s logo on a smartphone. Picture: DADO RUVIC/REUTERS
Houston — Chesapeake Energy agreed to buy smaller rival Southwestern Energy in an all-stock transaction valued at $7.4bn, a deal that will make it the largest independent US natural gas producer.
The deal disclosed on Thursday is a bet natural gas prices will stay off the multiyear lows they touched last year as demand from proposed new US liquefied natural gas (LNG) export terminals jumps in 2025.
“By combining our companies, we are LNG-ready,” said Chesapeake CEO Domenic Dell’Osso, who will hold the top job at the yet-to-be-named combined company. The purchase is expected to close next quarter.
Expectations for rising gas demand from LNG exporters “created some impetus to move”, Dell’Osso said on a call to discuss the deal. The new company expects up to 20% of its future production will be tied to international pricing, he said.
Chesapeake’s offer of $6.69 per Southwestern share represented a discount of about 3% to the stock’s last close, according to Reuters calculation. Shares have gained about 2% since Reuters reported in mid-October on the deal talks. Shares of Chesapeake were up 6.2% in morning trading on Thursday.
‘Improved position’
The larger output from the combined company “will improve the company's position ... as it relates to unlocking and securing additional LNG opportunities,” wrote Matt Portillo, an equity analyst at financial firm Tudor Pickering & Holt.
US gas production in recent years has jumped well above domestic demand, pushing inventories up and reducing profits at gas producers. US gas on Thursday traded around $3 per million British thermal units. Average price last year fell 62% compared to 2022.
The Southwestern bid is the biggest move to date in Chesapeake’s efforts to regain its former stature as the largest US gas producer since emerging from bankruptcy restructuring in 2021. Last year, it beefed up its position in the gas-rich shale plays of the U.S. northeast with a $2.5bn buyout of Chief E&D.
Investment firm Kimmeridge Energy Management, which pushed Chesapeake to move away from oil drilling, is “highly supportive of the merger”, it said. The firm has a little over 2% stake in each company.
Most of Southwestern’s production is in Appalachia’s shale formations in the US East and in the Haynesville shale basin close to U.S. LNG export plants.
The combined company will have production of about 7.9-billion cubic feet equivalent per day (Bcfepd), and leapfrog EQT Corp as the largest independent natural gas exploration and production company in the U.S. by market value and output.
New company name
The deal is expected to close in the second quarter and the company will bear a new name, ending the Chesapeake brand almost 35 years after its founding by wildcatters Aubrey McClendon and Tom Ward.
Chesapeake shareholders will own about 60% of the combined company and Southwestern investors the rest.
The deal is the latest in a spate of multibillion-dollar consolidation deals in the US energy sector as companies seek to secure future production. Among the recent combinations: ExxonMobil’s $60bn pending offer for shale firm Pioneer Natural Resources and Chevron’s $53bn agreement to buy Hess. Last week, APA Corp agreed to buy Callon Petroleum for $4.5bn.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Chesapeake and Southwestern $7.4bn merger creates largest US gas producer
Chesapeake shareholders to own 60% of combined company
Houston — Chesapeake Energy agreed to buy smaller rival Southwestern Energy in an all-stock transaction valued at $7.4bn, a deal that will make it the largest independent US natural gas producer.
The deal disclosed on Thursday is a bet natural gas prices will stay off the multiyear lows they touched last year as demand from proposed new US liquefied natural gas (LNG) export terminals jumps in 2025.
“By combining our companies, we are LNG-ready,” said Chesapeake CEO Domenic Dell’Osso, who will hold the top job at the yet-to-be-named combined company. The purchase is expected to close next quarter.
Expectations for rising gas demand from LNG exporters “created some impetus to move”, Dell’Osso said on a call to discuss the deal. The new company expects up to 20% of its future production will be tied to international pricing, he said.
Chesapeake’s offer of $6.69 per Southwestern share represented a discount of about 3% to the stock’s last close, according to Reuters calculation. Shares have gained about 2% since Reuters reported in mid-October on the deal talks. Shares of Chesapeake were up 6.2% in morning trading on Thursday.
‘Improved position’
The larger output from the combined company “will improve the company's position ... as it relates to unlocking and securing additional LNG opportunities,” wrote Matt Portillo, an equity analyst at financial firm Tudor Pickering & Holt.
US gas production in recent years has jumped well above domestic demand, pushing inventories up and reducing profits at gas producers. US gas on Thursday traded around $3 per million British thermal units. Average price last year fell 62% compared to 2022.
The Southwestern bid is the biggest move to date in Chesapeake’s efforts to regain its former stature as the largest US gas producer since emerging from bankruptcy restructuring in 2021. Last year, it beefed up its position in the gas-rich shale plays of the U.S. northeast with a $2.5bn buyout of Chief E&D.
Investment firm Kimmeridge Energy Management, which pushed Chesapeake to move away from oil drilling, is “highly supportive of the merger”, it said. The firm has a little over 2% stake in each company.
Most of Southwestern’s production is in Appalachia’s shale formations in the US East and in the Haynesville shale basin close to U.S. LNG export plants.
The combined company will have production of about 7.9-billion cubic feet equivalent per day (Bcfepd), and leapfrog EQT Corp as the largest independent natural gas exploration and production company in the U.S. by market value and output.
New company name
The deal is expected to close in the second quarter and the company will bear a new name, ending the Chesapeake brand almost 35 years after its founding by wildcatters Aubrey McClendon and Tom Ward.
Chesapeake shareholders will own about 60% of the combined company and Southwestern investors the rest.
The deal is the latest in a spate of multibillion-dollar consolidation deals in the US energy sector as companies seek to secure future production. Among the recent combinations: ExxonMobil’s $60bn pending offer for shale firm Pioneer Natural Resources and Chevron’s $53bn agreement to buy Hess. Last week, APA Corp agreed to buy Callon Petroleum for $4.5bn.
Reuters
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