Chesapeake to buy Southwestern for $7.4 billion

US shale gas producer Chesapeake Energy is buying compatriot Southwestern Energy for $7.4 billion to create the largest independent natural gas producer in the US.

Chesapeake offered $6.69 per Southwestern share in the all-stock transaction.

Under the terms of the deal, Southwestern shareholders would receive 0.0867 shares of Chesapeake common stock for each share of Southwestern common stock outstanding at closing.

At this exchange ratio and the respective share prices on January 10, 2024, the combined company would have an enterprise value of approximately $24 billion.

Pro forma for the transaction, Chesapeake shareholders would own about 60 percent while Southwestern shareholders would own about 40 percent of the combined company, on a fully diluted basis.

Chesapeake said the strategic combination would create a “premier energy company underpinned by a leading natural gas portfolio adjacent to the highest demand markets, premium inventory, resilient free cash flow, and an investment grade quality balance sheet.”

Also, the combined company, which would assume a new name at closing, would be uniquely positioned to deliver “affordable, lower carbon energy to meet growing domestic and
international demand with significant, sustainable cash returns to shareholders through cycles.”

Chesapeake expects the transaction, which remains subject to customary closing conditions, including approvals by Chesapeake and Southwestern shareholders and regulatory clearances, to close in the second quarter of 2024.

“LNG ready”

By combining acreage in Appalachia and Haynesville, the pro forma company has current net production of about 7.9 Bcfe/d with more than 5,000 gross locations and 15 years of inventory, Chesapeake said.

The company would build a global marketing and trading presence in Houston to supply natural gas to meet increasing domestic and international LNG demand, it said.

Together, the two firms are “LNG ready”, with ccaled assets in proximity to Gulf Coast / LNG corridor, Chesapeake said in a presentation.

In October 2023, Chesapeake signed a heads of agreement with Geneva-based trader Vitol to supply the latter with LNG from a liquefaction plant in the US.

Under the 15-year deal, Chesapeake Energy Marketing will supply up to 1 million tonnes of LNG per year to Vitol with the purchase price indexed to Japan Korea Marker (JKM).

Prior to that, Chesapeake signed a similar deal with Geneva-based trader Gunvor.

Under this 15-year deal, Chesapeake will supply up to 2 million tonnes of LNG per year to Gunvor with the purchase price indexed to JKM.

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