Chesapeake Energy to acquire Southwestern Energy

Last Updated: 8. Januar 2024By

Already in October of last year, the economic service Reuters reported that initial talks about a possible takeover were being held between US oil and gas producers Chesapeake Energy Corporation and Southwestern Energy Company.

Last Friday (01/05/2024), the Wall Street Journal, citing insider information, reported that the talks were now nearing completion and an acquisition of Southwestern Energy by competitor Chesapeake Energy could be announced this week.

Although both companies have not yet commented on the possible takeover, the stock markets reacted immediately. On Friday, the share price of Chesapeake Energy rose 2.9% on the US technology exchange Nasdaq. The share price of Southwestern Energy jumped 7.3% on the New York Stock Exchange (NYSE).

Before delving into further background information on the potential deal between the US energy companies, I would like to introduce the two companies briefly.

The two companies in brief The Chesapeake Energy Corporation, based in Oklahoma City, Oklahoma (about 320 km north of Dallas, Texas), is one of the largest natural gas producers in the United States and is considered a pioneer in the extraction of shale gas using fracking.

Due to the declining energy prices in the 2010s, the company had to file for bankruptcy in early 2020, but has since recovered due to the significant increase in oil and gas prices.

The company, founded in 1989, holds stakes in natural gas reserves in the Marcellus Shale in Pennsylvania and the Haynesville/Bossier Shale in northwestern Louisiana.

The approximately 1,200 employees of the energy company generated a revenue of 11.4 billion US dollars (USD – approximately 10.4 billion euros) and an operating profit (EBIT) of 3.8 billion USD (approximately 3.5 billion euros) in the 2022 fiscal year.

Southwestern Energy Company was founded in 1929 and is headquartered in Spring, Texas (about 300 km south of Dallas). The company is engaged in the exploration, development, and production of natural gas, oil, and liquefied natural gas (LNG) in Pennsylvania, West Virginia, Ohio, and Louisiana.

The approximately 1,100 employees of Southwestern Energy generated a revenue of 15 billion USD (approximately 13.7 billion euros) in 2022. The operating profit (EBIT) was 6.7 billion USD (approximately 6.1 billion euros).

Chesapeake Energy wants to expand portfolio In the oil and gas production business, there has been a lot of money to be made in recent years. The reason for this is the worldwide increase in energy prices and the establishment of fracking, which is mainly used in the USA. Accordingly, there are also strong takeover activities in this sector.

After some acquisitions in recent years, the acquisition of Southwestern Energy would be by far the largest deal for Chesapeake Energy. Southwestern has a current market/corporate value of 7.6 billion USD, making it only slightly less valued than Chesapeake Energy, whose market value is 10.4 billion USD.

The potential acquisition would result in a company with a market value of 18 billion euros. The merged company would be the largest US gas producer, based on market value, ahead of EQT Corporation.

The main reason for the acquisition of the competitor is likely the expansion of production capacities. It is also helpful that both companies are active in the same production regions in the USA.

What happens next So far, both companies have not commented on the speculation about a potential takeover. However, Reuters and the Wall Street Journal have good sources, so the announcement of the acquisition is considered relatively likely in the coming days.