Chesapeake merges with Southwestern Energy in $7.4 billion deal

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Chesapeake Energy is staying in Oklahoma City. It is part of the $7.4 billion merger announced Thursday with Southwestern Energy Company of Houston, Texas.

The two formally announced their agreement to merge in an all-stock transaction with a value of $6.69 per share based on Chesapeake’s closing price as of January 10. The announcment indicated that under the terms of the agreement, Southwestern shareholders will receive 0.0867 shares of Chesapeake common stock for each share of Southwestern common stock outstanding at closing.

While the agreement totaled $7.4 billion, the reported enterprise value of the two firms is closer to $24 billion. As a result of the merger announcement, Chesapeake Energy stocks gained $2.44 or 3.16% to close at $79.62 a share. Southwestern Energy stocks didn’t fare so well. They dropped 17 cents or 2.47% to finish the day at $6.72 per share.

(PRNewsfoto/Chesapeake Energy Corporation)

According to the announcement,  the strategic combination will 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. The combined company, which will assume a new name at closing, will 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.

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The merger will also create one of the largest, if not the largest natural gas focused companies in the U.S. Here’s what it means for the two firms:

  • Establishes industry’s premier natural gas portfolio: By combining high quality, large scale acreage in Appalachia and Haynesville, the pro forma company has current net production of approximately 7.9 Bcfe/d(1) with more than 5,000 gross locations and 15 years of inventory.
  • Annual operational and overhead synergies of approximately $400 million: Identified synergies will enhance shareholder value through improved capital efficiencies and operating margins driven by longer laterals, lower drilling and completion costs, G&A reductions, and the utilization of shared operational infrastructure.
  • Accretive to all key financial metrics: The combination is expected to be immediately accretive to all key per share financial metrics including operating cash flow, free cash flow, cash dividends, and net asset value, as well as ROCE.
  • Creates global platform to expand marketing and trading business, reaching more markets, mitigating price volatility and increasing revenue: In order to maximize value of the combined company’s scale of production, Investment Grade quality capital structure and 100% certified Responsibly Sourced Gas, the company will build a global marketing and trading presence in Houston to supply lower-cost, lower carbon energy to meet increasing domestic and international LNG demand.
  • Increases shareholder value through synergy enhanced, best-in-class return framework: Through Chesapeake’s existing shareholder return framework, the combined company expects an approximate 20% improvement in dividends per share over five years due to significant synergies and greater pro forma free cash flow generation.
  • Investment Grade quality capital structure: The combined company remains committed to maintaining a net leverage ratio below one times and Investment Grade metrics resulting in a lower cost of capital and improved credit profile. These attributes will increase access to and returns from marketing and LNG opportunities.
  • Sustainability leadership: The combined company will maintain its low natural gas emissions profile, commitment to achieving net zero Scope 1 and 2 GHG emissions by 2035, transparent disclosure on measurable targets, investment in low-carbon solutions, and social and governance excellence.

“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, Chesapeake’s President and Chief Executive Officer.

“The union creates a deep inventory of advantaged assets adjacent to high demand markets, allowing for the application of proven operational practices and the power of an Investment Grade quality balance sheet to drive significant synergies benefiting energy consumers and shareholders alike,” he added.

Dell’Osso went on to state that the world is short energy and demand for natural gas is growing, not just in the U.S. but 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. I look forward to leading the talented workforce of the combined organization to accelerate the long-term value opportunity for our shareholders, employees, and all stakeholders.”

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Southwestern’s President and CEO Bill Way added his support for the huge deal.

“Together, Southwestern and Chesapeake can drive improved margins and returns from our highly complementary portfolios through enhanced scale, capital allocation flexibility, and access to premium markets to supply growing global natural gas demand. Most importantly, both sets of shareholders are able to participate in the substantial value creation and future growth opportunities of the combined company, with one of the top shareholder return frameworks in the sector.”

Transaction Details:

Under the terms of the agreement, Southwestern shareholders will receive a fixed exchange ratio of 0.0867 shares of Chesapeake common stock for each share of Southwestern common stock owned 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 will own approximately 60% and Southwestern shareholders will own approximately 40% of the combined company, on a fully diluted basis.

The combination has been approved by the boards of directors of both companies. The transaction, which is subject to customary closing conditions, including approvals by Chesapeake and Southwestern shareholders and regulatory clearances, is targeted to close in the second quarter of 2024.


Following the merger, the board of directors of the combined company will increase to 11 members and will initially be comprised of seven representatives from Chesapeake and four representatives from Southwestern. Mike Wichterich will serve as Non-Executive Chairman and Nick Dell’Osso as President and Chief Executive Officer of the combined company. The combined company will be headquartered in Oklahoma City while maintaining a material presence in Houston and will assume a new name upon closing.


Evercore is serving as lead financial advisor, J.P. Morgan Securities LLC as financial advisor, Latham & Watkins LLP and Wachtell, Lipton, Rosen & Katz as legal advisors, and DrivePath Advisors as communications advisor to Chesapeake. Morgan Stanley also advised Chesapeake.

Goldman Sachs & Co. LLC. is serving as lead financial advisor and RBC Capital Markets, LLC along with BofA Securities and Wells Fargo Securities, LLC as financial advisors. Kirkland & Ellis LLP is serving as legal advisor, and Joele Frank as communications advisor to Southwestern Energy.

The announcement brought some relief to Oklahoma City Mayor David Holt after there had been speculation that such a merger might mean the loss of Chesapeake Energy in the city.

“We dodged this bullet and seems like there’s a clear commitment to Oklahoma City for the forseeable future,” he told Radio Oklahoma Network.

“Maybe the investments we made over the past 30 years continued to position us well when these decisions are made and people think about the quality of life.”

The mayor admitted the Chesapeake employment in the city, totaling 1,300 with most in Oklahoma City, represents high paying jobs.

“They’re some of the best jobs our community has financially, so obviously you want to retain those jobs and it’s a great thing that it looks like that it’s gonna be safe.”

Based on Zippia, the career expert, the average employee at Chesapeake Energy makes $68,587 a year.

Oklahoma Lt. Gov. Matt Pinnell called it “great news for Oklahoma.”

“Thi is a big win for Oklahoma obviously with the headquarters that’s going to be staying in Oklahoma City with the merger and now one of the largest providers of natural gas across and across the world.”