Chesapeake and Southwestern in talks to form largest US gas producer

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US natural gas companies Chesapeake Energy and Southwestern Energy are closing in on a merger deal that would create the biggest single producer in the country with a combined market value of about $17bn, according to people familiar with the talks. 

The companies are in advanced discussions on an agreement to be signed as soon as next week, according to the people, though they cautioned it could still fall apart. 

The potential tie-up comes as a wave of merger and acquisition activity sweeps across the US oil and gas sector as companies look to build scale and bulk up on dwindling prime drilling acreage. 

ExxonMobil in October announced a $60bn deal to buy Pioneer Natural Resources, the largest oil producer in Texas. Shortly afterwards, Chevron unveiled a $53bn acquisition of US oil company Hess.

Occidental Petroleum in December said it had agreed to pay $12bn for CrownRock and this week APA said it would buy Callon Petroleum for $4.5bn.

Most of the deals to date have been oil-focused. A merger between Oklahoma-based Chesapeake — valued at about $10bn at the market close on Thursday — and Texas-based Southwestern — valued at $7bn — would be the first big gas-focused tie-up since the frenzy began. 

Chesapeake produced 3.4bn cubic feet of gas a day in the third quarter of 2023, according to S&P Capital IQ; Southwestern produced 4bn cu ft/d. EQT, which ranks as the top gas producer in the country, produced 5.4bn cu ft/d.

Chesapeake and Southwestern operate in proximity in gas-rich basins of Appalachia in the US north-east and the Haynesville shale in the state of Louisiana. Chesapeake declined to comment, while Southwestern did not reply to a request for comment. 

Reuters reported in October that Chesapeake had approached Southwestern about a potential takeover. The Wall Street Journal on Friday initially reported the advanced merger talks, sending Southwestern’s shares up 7 per cent and Chesapeake’s up 3 per cent. 

Chesapeake was a prime mover in the shale revolution that swept the US over the past 15 years, rising to a valuation of $35bn with its late co-founder and chief executive Aubrey McClendon becoming the best-paid executive in the America. 

But an ill-timed pivot into oil ultimately led to its bankruptcy as the Covid-19 pandemic upended the industry in 2020. It emerged from bankruptcy the following year and has since sought to refocus its portfolio on gas. 

Less of a household name, Southwestern was formed in Arkansas ahead of the Depression. It played a leading role developing the Fayetteville shale basin in Arkansas and Oklahoma before expanding into Appalachia and the Haynesville in recent years.