Chesapeake Energy reached an agreement to acquire rival Southwestern Energy Co. for $7.4 billion through a deal that would create one of the largest US natural gas producers.
Oklahoma City-based Chesapeake (NSQ:CHK) will pay $6.69 per share, it said Thursday in a statement. The transaction is expected to close in the second quarter, subject to regulatory approvals.
The acquisition positions Chesapeake ahead of its biggest rival, EQT Corp, in terms of gas production and expand its holdings in two key drilling regions: the Marcellus basin in Appalachia and the Haynesville basin straddling Louisiana and east Texas. It comes as US oil and gas producers are increasingly buying up competitors in an effort to cut costs and line up new drilling sites.
In October, Exxon Mobil Corp. reached a $60 billion deal to buy Pioneer Natural Resources Co. Chevron Corp. followed up with a $53 billion agreement for Hess Corp. And in December, Occidental Petroleum agreed to acquire CrownRock for $10.8 billion.
Southwestern shares fell as much as 8% before the start of regular trading in New York. Chesapeake shares were down 0.6%.
The Federal Trade Commission has been scrutinizing large oil and gas deals. The agency has requested further information from Exxon Mobil and Chevron following their massive October acquisitions that each exceeded $50 billion. While the Chesapeake-Southwestern deal is much smaller than those financially, the tie-up creates by far the largest natural gas producer in the US and could see similar scrutiny.
Analysts do not expect the FTC to strike down the deal, “but there could be some noise around regulatory concerns” like the other recent, large oil and gas deals, said Kevin MacCurdy, director of research for Pickering Energy Partners.
Buying Southwestern (NYSE: SWN) cements Chesapeake’s push to focus more exclusively on natural gas. It also puts the company in a better position to capitalize on global demand for liquefied natural gas shipments from the US Gulf Coast.
The merger marks the next stage in Chesapeake’s evolution,“making it the largest natural gas E&P in the US by production, proved reserves, market cap and enterprise value while adding to its dual-basin acreage,” Gabriele Sorbara, managing director at Siebert Williams, wrote in an analyst note.
Chesapeake’s move to become more of a pure-play gas company sharpened last year when it exited South Texas and sold its remaining Eagle Ford oil and gas assets to SilverBow Resources Inc. for $700 million.
As part of the deal, Chesapeake will increase its board to 11 members, including four representatives from Southwestern. Chesapeake’s current chairman, Mike Wichterich, will remain at the helm.
Chesapeake and its late co-founder, Aubrey McClendon, were pioneers of the modern fracking industry, developing many of the business and drilling practices that defined the shale boom in the 2000s.
While the run-up in oil prices since the pandemic helped put Exxon and Chevron in position to strike the huge takeover deals they announced last year, gas hasn’t presented the same opportunity. While prices spiked in the year after Russia’s invasion of Ukraine, they were far lower in 2023. That’s prompted explorers to be more conservative when it comes to spending.
Still, with many of the best drilling locations already owned or leased, buying up rivals with choice sites is becoming increasingly important for companies to keep growing.
Evercore Inc. and JP Morgan Securities LLC were Chesapeake’s financial advisors. Goldman Sachs & Co LLC, RBC Capital Markets LLC, BofA Securities Inc. and Wells Fargo Securities LLC. advised Southwestern.
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