Chesapeake Energy to Acquire Southwestern Energy in $7.4 bn Deal to Become Largest U.S. Gas Producer

By Editor


Chesapeake Energy has entered into an all-stock acquisition agreement with smaller rival Southwestern Energy valued at $7.4 billion. This deal positions Chesapeake Energy to become the largest independent natural gas producer in the United States.

The news announcement on Thursday signifies Chesapeake’s strategic bet on the anticipation that natural gas prices will rebound from the multi-year lows observed last year. The company is banking on increased demand, particularly from proposed new U.S. liquefied natural gas (LNG) export terminals set to surge in 2025.

The latest report from the International Energy Agency (IEA) indicated that growth in global gas demand is set to slow down significantly over the medium term (2022-2026).

“By combining our companies, we are LNG-ready,” said Chesapeake Chief Executive Domenic Dell’Osso, who is slated to assume the top role in the newly formed, yet-to-be-named entity resulting from the merger. The transaction is projected to be finalized in the next quarter.

Domenic Dell’Osso emphasized that the expectations of rising gas demand from LNG exporters served as a catalyst for the deal. He mentioned on a call discussing the agreement that the new company anticipates up to 20 percent of its future production will be linked to international pricing.

Chesapeake’s offer of $6.69 per Southwestern share represents a slight discount of around 3 percent to the stock’s last close, according to Reuters calculations.

The merger of Chesapeake Energy and Southwestern Energy is expected to boost production, with the combined entity producing about 7.9 billion cubic feet equivalent per day (Bcfepd). This would catapult Chesapeake ahead of EQT to become the largest independent natural gas exploration and production company in the U.S., both in terms of market value and output, Reuters news report said.

The acquisition of Southwestern Energy is a pivotal move in Chesapeake’s journey to reclaim its former status as the leading U.S. gas producer since emerging from bankruptcy restructuring in 2021. Last year, Chesapeake strengthened its position in the gas-rich shale plays of the U.S. Northeast through a $2.5 billion buyout of Chief E&D.

The deal is part of a broader trend of consolidation in the U.S. energy sector, with companies seeking to secure future production. Recent examples include Exxon Mobil’s $60-billion pending offer for Pioneer Natural Resources and Chevron’s $53-billion agreement to acquire Hess. Last week, APA also announced a $4.5 billion acquisition of Callon Petroleum.

IEA in the Gas 2023 Medium-Term Market Report earlier said global gas demand is on course to grow by an average on 1.6 percent a year between 2022 and 2026, down from an average of 2.5 percent a year between 2017 and 2021.

Global LNG capacity is expected to expand by 25 percent between 2022 and 2026, with the United States consolidating its position as the world’s largest LNG exporter through the construction of new liquefaction plants. Gas prices decreased in the first three quarters of 2023.

Baburajan Kizhakedath

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