A Gas Giant: Chesapeake To Become Top US Gas Producer With $7.4 Billion Deal To Buy Southwestern

Two of the most established US independents are combining to form a natural gas powerhouse that will be given a new name later this year.

Source: Chesapeake Energy

The US energy landscape is reshaping once again after the announcement that Chesapeake Energy is acquiring Southwestern Energy in an all-stock deal with a $7.4 billion value.

The combined firm, to be given a new name at closing, will eclipse rival shale explorer EQT to become the biggest gas producer in the US, with a pro forma production of 7.3 Bcf/D—or 7% of total US output based on 2023 figures.

In addition to becoming the largest operator in Louisiana’s Haynesville Shale, with a post-merger holding of 650,000 net acres, the new company will also boast a position of 1.18 million net acres across the prolific Appalachian Basin in Ohio, West Virginia, and Pennsylvania.

Chesapeake and Southwestern shareholders will own approximately 60% and 40% of the combined firm, respectively, which will have an estimated enterprise value of around $24 billion. Terms of the deal include Chesapeake assuming almost $4 billion in the seller’s outstanding debt.

"This powerful combination redefines the natural gas producer, forming the first US based independent that can truly compete on an international scale,” Nick Dell'Osso, Chesapeake's president and CEO, said in a statement.

Dell'Osso will stay on as the president and chief of the combined company, whose board will consist of 11 directors—seven from Chesapeake and four from Southwestern.

Bill Way, president and CEO of Southwestern, thanked his staff in the announcement of the deal, which he described as “transformational.”

He added, “Together, Southwestern and Chesapeake can drive improved margins and returns from our highly complementary portfolios through enhanced scale, capital allocation flexibility, and access to premium markets to supply growing global natural gas demand.”

The combined firm will be headquartered in Oklahoma City, where Chesapeake was founded in 1989 by the late shale pioneer Aubrey McClendon. Last year, Chesapeake completed a multideal divestment exceeding $3.5 billion of its liquids-rich Eagle Ford in Texas to become a gas-focused operator.

The merged company plans to maintain a presence in the Houston area, where Southwestern has been based since 2000. Part of that plan includes establishing a new trading business in Houston to bring to global markets its volumes of responsibly sourced gas, which are subject to independent verifications that environmental best practices were used in the extraction process.

Analysts at Enverus Intelligence Research said the top driver behind the deal was Southwestern’s Haynesville asset of 286,000 acres, which will boost Chesapeake’s output in the dry gas play beyond 4 Bcf/D. The market research firm noted that some 1,300 of the acquired gas wells generate at least 10% returns at or below $3.50/Mcf.

“The Haynesville is particularly desirable as an area for Chesapeake to grow its exposure as the play combines high-quality drilling opportunities with proximity to a burgeoning market for gas to feed US LNG exports,” Andrew Dittmar, senior vice president of Enverus Intelligence Research, said of the deal.

He added that the US is about to see 10 Bcf/D of new LNG capacity come online over the next 36 months as the share of US gas flowing to LNG trains swells from 12% today to 20% by 2030.

Overhead, staffing, and operational savings as a result of the merger are expected to be in the area of $400 million annually.

The joint announcement by the companies said one key to the anticipated operational savings will be the drilling of longer laterals—a trend that has seen many tight rock producers extend from 2-mile long horizontal sections to 3 miles. Additionally, the merged firm will maintain a goal to attain net zero Scope 1 and 2 emissions by 2035.

Pending shareholder and regulatory approval, the transaction is expected to close by the end of the second quarter.