Chesapeake Energy and Southwestern Energy, two of the largest natural gas producers in the United States, announced plans on Thursday to merge in an all-stock deal worth $7.4 billion. The new company would become one of the largest energy producers in the United States and would have a significant presence in Louisiana and Texas.
Together, the two companies would have a market value of around $24 billion and would thus challenge competitors such as Chevron and EQT. By Thursday afternoon, Chesapeake's stock price was up more than 5 percent.
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 closed a $60 billion deal to buy Pioneer Natural Resources, a major producer in Texas' Permian Basin.
“Combining Chesapeake and Southwestern will reduce overall costs,” Peter McNally, an energy analyst at research firm Third Bridge, wrote in a note, but there is “little likelihood that these companies will impact the ever-increasing price of natural gas.” a global market.”
Oil prices have stalled recently: the price of West Texas Intermediate, the U.S. benchmark, has fallen more than 40 percent since June 2022, and prices are expected to fall further this year as the global growth slows. The International Energy Agency has also forecast “peak oil” by 2030, when it says oil demand will stagnate as renewable energy displaces fossil fuels.
Chesapeake, a pioneer in extracting natural gas from shale, played a large role in helping the United States become a net exporter of natural gas. But in recent years there has been turbulence. The company filed for bankruptcy in June 2020 with more than $20 billion in debt, largely because one of its founders, Aubrey McClendon, overextended the company's operations.
Under Mr. McClendon, who helped found the company in 1989, Chesapeake aggressively drilled and produced shale gas in states such as Texas, Louisiana and Oklahoma, making the company one of the country's largest producers in the 2000s.
But the company produced more natural gas than demand, sending Chesapeake into a tailspin just as the industry experienced a sharp decline in the early 2010s. Mr. McClendon, who was also a part-owner of the National Basketball Association's Oklahoma City Thunder, resigned as the company's chief executive in 2013 as he came under investigation for corruption. He was charged in 2016 with conspiring to suppress oil and natural gas lease prices and died in a car accident the day after his arraignment.
By early 2021, Chesapeake was able to reduce its debt through bankruptcy proceedings and has since expanded its operations, including by acquiring Vine Energy, a natural gas competitor, in August 2021. The company also expanded its production in the Haynesville Shale region of Louisiana and East Texas.
Southwestern Energy is focusing its operations in the Appalachian Mountains, with nearly 90 percent of its production and about 75 percent of its reserves coming from this region in 2021, according to a Securities and Exchange Commission filing. The remainder of its reserves are concentrated in the Haynesville Shale region, providing the newly combined companies with a prime position to expand their operations.
Andrew Dittmar, energy analyst at research firm Enverus, said the deal “combines high-quality drilling opportunities” and “proximity to an emerging gas market” that would help bolster U.S. exports.
Southwestern Energy has struggled in recent years, with its stock price down more than 85 percent since 2014, when the oil and natural gas markets experienced a sharp downturn.
The deal must be approved by regulators and approved by the companies' shareholders. The companies said they expected the merger to be completed by the end of June.