Chesapeake Energy (CHK) and Southwestern Energy (SWN) announced Thursday they have agreed to merge in a $7.4 billion deal, marking a major consolidation in the U.S. natural gas sector. SWN stock sank early Thursday while CHK angled slightly lower.
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The merger is an all-stock transaction valued at $6.69 per share, based on Chesapeake’s closing price of 77.18 on Wednesday. SWN shareholders will receive 0.0867 shares of CHK stock for each share of Southwestern stock at the close of the deal, which is expected in Q2 2024, according to the release.
The combined company will assume a new name when the merger is complete and have a market cap of $24 billion.
“This powerful combination redefines the natural gas producer, forming the first U.S. based independent that can truly compete on an international scale,” Chesapeake Energy Chief Executive Nick Dell’Osso said in the press release.
“The world is short energy and demand for our products is growing, both in the U.S. and overseas. We will be positioned to deliver more natural gas at a lower cost, accelerating America’s energy reach and fueling a more affordable, reliable, and lower carbon future,” he added.
The combined company would have a large natural gas portfolio and 15 years of inventory, according to the press release. They are also projecting approximately 20% “improvement in dividends per share” over five years due to significant synergies and greater pro forma free cash flow generation.
Southwestern and Chesapeake, both S&P Midcap 400 stocks, were early players in the shale gas boom begun in the early 2000s. Chesapeake currently ranks as the No. 2 gas producer in the U.S., just behind Exxon Mobil (XOM).
Chesapeake Energy stock advanced 0.2% while Southwestern Energy stock plummeted 5.8% Thursday during premarket action.
Gas Consolidation After Oil Deals Make Headlines
The merger agreement between the two natural gas companies follows several high profile consolidation moves in the oil industry.
In late 2023, Exxon Mobil firmed up its Permian Basin holdings with a $60 billion deal for Pioneer Natural Resources (PXD). Then Chevron (CVX) quickly followed up with its $53 billion purchase of Hess (HES), expanding its ownership in offshore Guyana.
What Do The Exxon Mobil And Chevron Deals Say About The Oil Industry’s Future?
In December 2023, Warren Buffett-backed Occidental Petroleum (OXY) announced it agreed to purchase privately held Permian Basin oil producer, CrownRock. The deal, valued at around $12 billion, would be the company’s first major acquisition since 2019.
Warren Buffett also holds a nearly 6% stake in Chevron.
Analysts predict more consolidation in the energy space in 2024 and beyond with large companies attempting to secure the remaining high-quality U.S. shale inventory.
Please follow Kit Norton on X, formerly known as Twitter, @KitNorton for more coverage.
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