TOP NATURAL GAS PRODUCERS SET TO MERGE
With $7.4 billion deal, new company would become one of largest in the U.S.
Chesapeake Energy and Southwestern Energy, two of the largest natural gas producers in the United States, announced plans to merge Thursday in an all-stock deal worth $7.4 billion. The new company would become one of the largest energy producers in the United States, with a significant presence in Louisiana and Texas.
Combined, the two companies would have a market value of about $24 billion, challenging rivals like Chevron and EQT.
The deal is the latest in a series of mergers and acquisitions involving U.S. oil and natural gas companies. In October, Chevron announced plans to acquire Hess in a $53 billion deal. Two weeks earlier, Exxon Mobil struck a $60 billion deal to buy Pioneer Natural Resources, a major producer in the Permian Basin in Texas.
“Bringing Chesapeake and Southwestern together will reduce overall costs,” Peter McNally, an energy analyst at research firm Third Bridge, wrote in a note, but there was
“little likelihood of these companies influencing the price of natural gas, which is increasingly becoming a global market.”
Oil prices have faltered recently: The price of West Texas Intermediate, the U.S. bench mark, has declined more than 40 percent since June 2022, and prices are expected to further decline this year as global growth slows. The International Energy Agency has also projected “peak oil” by 2030, when it says oil demand will plateau as renewable energy
crowds out fossil fuels.
Chesapeake, a pioneer in extracting natural gas from shale rock, played a big role in helping the United States become a net exporter of natural gas. But it has faced turmoil in recent years. It filed for bankruptcy in June 2020 with more than $20 billion in debt, largely because one of its founders, Aubrey McClendon, had overextended the company’s operations.
Under McClendon, who helped start the company in 1989, Chesa
peake aggressively drilled and extracted gas from shale rock in Texas, Louisiana and Oklahoma, making it one of the country’s top producers in the 2000s.
But the company produced more natural gas than there was demand for, sending Chesapeake into a tailspin just as the industry experienced a major contraction in the early 2010s. McClendon, who was also a part-owner of the Oklahoma City Thunder of the NBA,
stepped down as CEO of the company in 2013 while under scrutiny for corruption. He was charged with conspiring to suppress prices for oil and natural gas leases in 2016 and died in a single-vehicle crash the day after his indictment.
By early 2021, Chesapeake was able to reduce its debt through the bankruptcy process, and it has since expanded its operations, including by acquiring Vine Energy, a natural gas rival, in August 2021. It also expanded its production in the Haynesville Shale region of Louisiana and East Texas.
Southwestern Energy focuses its operations in Appalachia, with nearly 90 percent of its production and around 75 percent of its reserves coming from that region in 2021, according to a Securities and Exchange Commission filing. The rest of its reserves are concentrated in the Haynesville Shale region, offering the newly merged companies a prime position to expand their operations.
Andrew Dittmar, an energy analyst at research firm Enverus, said the deal “combines high-quality drilling opportunities” and “proximity to a burgeoning market for gas” that would help strengthen U.S. exports.
Southwestern Energy has struggled in recent years, as its share price is down more than 85 percent since 2014, when oil and natural gas markets experienced a major downturn.
The deal must be cleared by regulators and approved by the companies’ shareholders. The firms said they expected the merger to be completed by the end of June.