Chesapeake Energy and Southwestern Energy, two of the largest U.S. natural gas producers, announced plans to merge on Thursday, in an all-stock deal valued at $7.4 billion. 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 would have a market value of about $24 billion, posing a challenge to rivals like Chevron and EQT. By Thursday afternoon, Chesapeake’s stock price had risen more than 5 percent.
This deal is the latest in a series of mergers and acquisitions involving American oil and natural gas companies. In October, Chevron announced plans to acquire Hess in a deal worth $53 billion. Two weeks earlier, Exxon Mobil closed a $60 billion deal to buy Pioneer Natural Resources, a major producer in Texas’ Permian Basin.
“Bringing Chesapeake and Southwest together will lower overall costs,” but there is “little potential for these companies to impact natural gas prices, which are becoming increasingly common,” Peter McNally, an energy analyst at research firm Third Bridge, wrote in a note. Global market.”
Oil prices have faltered recently: The price of West Texas Intermediate crude, the US benchmark, has fallen more than 40% since June 2022, and prices are expected to fall further this year as global growth slows. The International Energy Agency has also predicted “peak oil” by 2030, saying demand for oil will stabilize as renewable energy crowds out fossil fuels.
Chesapeake, a leader in extracting natural gas from shale rocks, has played a major 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 McLendon, had over-expanded the company’s operations.
Under McLendon, who helped found the company in 1989, Chesapeake drilled and extracted gas from shale rocks in states such as Texas, Louisiana and Oklahoma, making it one of the nation’s largest producers in the 2000s.
But the company produced more natural gas than demand, throwing Chesapeake into disarray at a time when the industry experienced a major downturn in early 2010. Mr. McLendon, who was also part owner of the Oklahoma City Thunder of the NFL, has resigned. National Basketball Association, resigned from his position as CEO of the company in 2013 while under scrutiny for corruption. He was accused of conspiring to suppress oil and natural gas lease prices in 2016, and died in a single-car crash the day after he was charged.
By early 2021, Chesapeake had managed to reduce its debt through the bankruptcy process, and has since expanded its operations, including acquiring Vine Energy, a natural gas competitor, in August 2021. It has also expanded its production in the Haynesville Shale region in Louisiana and East Texas.
Southwestern Energy is focusing its operations in Appalachia, with approximately 90 percent of its production and about 75 percent of its reserves coming from that region in 2021, according to a Securities and Exchange Commission filing. The remainder of its reserves are concentrated in the Haynesville Shale, providing the newly merged companies with a prime location to expand their operations.
The deal “combines high-quality drilling opportunities” with “proximity to a thriving gas market” that would help boost U.S. exports, said Andrew Dittmar, an energy analyst at research firm Enverus.
Southwestern Energy has struggled in recent years, with its stock price falling more than 85% since 2014, when oil and natural gas markets experienced a major downturn.
The deal must be approved by regulators and approved by the companies’ shareholders. The two companies said they expect to complete the merger by the end of June.