Just when you thought the big-name mergers from 2023 were complete, the industry saw another major move, with Chesapeake and Southwestern announcing a $7.4 billion all-stock merger. As the natural gas demand continues to grow, this move will prop the group up as the largest natural gas producer of U.S. shale and set a stage of dominance in Louisiana and East Texas’ Haynesville play.
With a focus on cutting costs and increasing profits, many within the oil and gas industry have embraced consolidation. The announced merger comes in response to the LNG boom making headlines along the Gulf Coast region, which is expected to enable drillers to sell and export more natural gas globally to areas like Europe and Asia. Touting $17 billion in market capitalization, the pair will also benefit from a solid stakehold in the Northeast gas-rich basins as well.
According to a Wall Street Journal article, the merger would levy a 4.5 percent premium to Southwestern’s share price. Priced at $6.69 per share, the deal values Southwestern at a discount of 2.9 percent.
“This powerful combination redefines the natural gas producer, forming the first U.S. based independent that can truly compete on an international scale,” said Nick Dell’Osso, Chief Executive to Chesapeake.
Aubrey McClendon, who died in a car accident in 216 one day after being indicted on bid-rigging charges, founded Chesapeake. Still, the company announced it would rebrand after completing the merger process. Its corporate headquarters will reside in Oklahoma City and have a presence in Houston.
“The world is short energy and demand for our products is growing, both in the U.S. and overseas,” said Dell’Osso. “We will be positioned to deliver a more affordable, dependable, and lower carbon future.”
While Dell’Osso will step into the president and CEO role of the new combination company, the board will expand to eleven members, with seven coming from Chesapeake and four from Southwestern. No determination has been publicly made as to what role Bill Way, Southwestern’s CEO, will play post-merger.
With Chevron and ExxonMobil’s recent acquisition deals currently being analyzed by antitrust regulators, Dell’Osso expects the Chesapeake and Southwestern merger to succumb to the same attention. Still, he remains confident in how the new company will impact the natural gas market.
“We think that this is a great transaction for everyone involved and believe it should be ready for the market to accept,” said Dell’Osso.
Considering what each party brings, Dan Pickering, chief investment officer for Pickering Energy Partners, points to an uptick in opportunity for investors, additional flexibility, and more significant profitability potential.
“It’s a good blocking and tackling strategy that has the advantage of putting them on more radar screens,” said Pickering.
Securing a presence as a natural gas giant, the new company will ensure ownership of more than 20 percent of production in the Haynesville with over six hundred acres of assets. With growing demand, the new company will have the capacity to answer the call due to the 1,300 drilling locations positioned to service the export market.
While both the United States and its global neighbors continue to demand more natural gas, the combination company of Chesapeake and Southwestern will be positioned to capitalize on supplying that demand. Securing premium acreage set in the heart of natural gas production will allow for longevity in supply opportunities. With the deal expected to be finalized in the second quarter of this year, the industry can expect to see strong and steady activity through the end of the year.
Nick Vaccaro is a freelance writer and photographer. In addition to providing technical writing services, he is an HSE consultant in the oil and gas industry with twelve years of experience. Vaccaro also contributes to SHALE Oil and Gas Business Magazine, American Oil and Gas Investor, Oil and Gas Investor, Energies Magazine and Louisiana Sportsman Magazine. He has a BA in photojournalism from Loyola University and resides in the New Orleans area. Vaccaro can be reached at 985-966-0957 or email@example.com.
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