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The two largest natural-gas producers in the United States, Chesapeake Energy and Southwestern Energy, announced plans on Thursday to merge in a $7.4 billion all-stock deal. The new company will become one of the largest energy producers in the United States with a significant presence in Louisiana and Texas.
Combined, the two companies will have a market value of about $24 billion, challenging rivals like Chevron and EQT. By Thursday afternoon, Chesapeake’s share price was up more than 5 percent.
The deal is the latest in a series of mergers and acquisitions involving US oil and natural gas companies. In October, Chevron announced plans to acquire Hess in a $53 billion deal. Two weeks ago, Exxon Mobil signed a $60 billion deal to buy Pioneer Natural Resources, a major producer in the Permian Basin in Texas.
“Bringing together Chesapeake and Southwestern would reduce overall costs,” Peter McNally, an energy analyst at research firm Third Bridge, wrote in a note, but “there was little potential for these companies to impact the price of natural gas, which It is increasing rapidly.” global market.”
Oil prices have faltered recently: The price of US benchmark West Texas Intermediate has fallen more than 40 percent since June 2022, and prices are expected to fall further this year as global growth slows. The International Energy Agency also estimates “peak oil” for 2030, when it says oil demand will stabilize as renewable energy replaces fossil fuels.
Chesapeake, a pioneer in extracting natural gas from shale rock, played a large 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 overgrown the company’s operations.
Under the leadership of Mr. McClendon, who helped start the company in 1989, Chesapeake aggressively drilled and extracted gas from shale rock in states such as Texas, Louisiana and Oklahoma, making it one of the nation’s top producers in the 2000s. became.
But the company produced more natural gas than was demanded, putting Chesapeake in trouble, just as the industry experienced a major contraction in the early 2010s. Mr. McClendon, who was also a part owner of the National Basketball Association’s Oklahoma City Thunder, stepped down as chief executive of the company in 2013 while he was investigated for corruption. He was charged in 2016 with conspiring to suppress the prices of oil and natural gas leases and died in an automobile accident the day after his indictment.
In early 2021, Chesapeake was able to reduce its debt through the bankruptcy process, and has since expanded its operations, including the acquisition of natural gas rival Vine Energy in August 2021. It has also expanded its production in the Haynesville Shale field. of Louisiana and East Texas.
Southwestern Energy focuses its operations in Appalachia, with about 90 percent of its production and about 75 percent of its reserves coming from that region in 2021, according to Securities and Exchange Commission filings. Its remaining reserves are concentrated in the Haynesville Shale region, providing a prime location for newly merged companies to expand their operations.
Andrew Dittmar, energy analyst at research firm Enverus, said the deal “combines high-quality drilling opportunities” and “proximity to a growing market for gas” that will help strengthen U.S. exports.
Southwestern Energy has struggled in recent years, as its share price has fallen more than 85 percent since 2014, when the oil and natural gas markets experienced a major downturn.
The deal must be cleared by regulators and approved by the companies’ shareholders. The companies said they expect the merger to be completed by the end of June.
