Chesapeake merger with Southwestern, with HQ in OKC, will 'redefine' natural gas sector

Not just a major merger, not just a rebranding — OKC's Chesapeake Energy Corp. and Texas-based Southwestern Energy Co. together will create a $24 billion enterprise that "redefines the natural gas producer, forming the first U.S. based independent that can truly compete on an international scale."

That's according to Nick Dell'Osso, Chesapeake president and CEO, who announced the anticipated merger Thursday. Dell'Osso will be chairman and CEO of the new company.

The new company will remain in Oklahoma City, which had been in question, but also will keep Southwestern's headquarters in Spring, Texas, north of Houston, and create its global marketing and trading presence in Houston.

The new name will be revealed when the deal closes, probably by midyear, Dell'Osso said during a conference call with investors and others.

RELATED: What would a Chesapeake Energy merger mean for massive OKC campus?

Some details of the merger of Chesapeake Energy and Southwestern Energy

The all-stock deal is valued at $7.4 billion, or $6.69 per share, based on Chesapeake's closing price on Wednesday. Chesapeake shareholders will own about 60% and Southwestern shareholders about 40% of the combined company, on a fully diluted basis, meaning if all possible shares were issued.

Dell'Osso said the merger will create an "unparalleled natural gas portfolio" of 1.2 million acres in the Appalachian shale formations in Pennsylvania, West Virginia and Ohio, and the Haynesville shale in northwest Louisiana, northeast Texas and southwest Arkansas.

Southwestern and Chesapeake together currently are producing nearly 8 billion cubic feet(equivalent) of natural gas daily. Combined, the companies would have 5,000 locations it could drill and produce over the next 15 years, Chesapeake said.

More: Chesapeake Energy's history ahead of merger reflects volatility of the oil and gas industry

The new natural gas giant will have "unrivaled access to premium sale points," Dell'Osso said, "adjacent to the highest demand markets," exporting from Texas and Louisiana Gulf shores to Europe, Asia and other overseas buyers.

"The world is short energy, and demand for our products is growing, both in the U.S. and overseas," Dell'Osso said. "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."

Jobs losses and consolidations in Oklahoma City unclear after Chesapeake Energy merges with Southwestern Energy

It remains unclear how many, if any, jobs will be lost to consolidation, or whether they would be in Oklahoma City or Texas. Dell'Osso did not talk in specifics about employment during the conference call, and Chesapeake did not respond to a question about specifics.

In a memo sent to employees Thursday morning, Dell'Osso said: "We look forward to bringing the talent of both organizations together, using our collective strengths to create a business that is stronger than it ever could have been independently."

Chesapeake last reported, at the end of 2022, having about 1,200 employees, with 59% corporate staff, or about 700, and the rest in the field. It's not clear whether all of its corporate staff is in OKC. Securities data provider MacroTrends reported Southwestern's workforce at about 1,100 in 2022.

"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," Dell'Osso said. Both companies have "a lot of history and a of great talent," he said, and together they will accomplish more than either could on its own.

Southwestern Energy CEO and Chesapeake Energy CEO: Merger will be good for shareholders and the market for natural gas

Southwestern President and CEO Bill Way said the move is good for the natural gas market, and good for shareholders.

"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," Way said. "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."

Chesapeake CEO Dell'Osso said the flexibility that comes with the merger sets the stage for the new company's future.

"The combined company (will be) able to access as many markets as it can, and we've referenced 25 sales points across the entire portfolio," he said. "A lot of those obviously in Louisiana, as well as everywhere, the flexibility is really important to us.

"As we all know, demand for natural gas is very volatile. And therefore, the price that you receive for natural gas can be very volatile. And so the ability to move supply to the places where it is needed most, when it is needed most, and be flexible in how you do that, is super important to customers as well as to the value that you receive."

Chesapeake-Southwestern merger is a big boost for Oklahoma City's role in the energy sector, analyst says

"This is very good news for a change – a breath of fresh air," said Jake Dollarhide, co-founder and CEO of Longbow Asset Management, in Tulsa.

Dollarhide said he already had counted Oklahoma City fortunate after Continental Resources chose to stay there even after deciding to take itself private.

Chesapeake's announcement bodes well for the community as well because it allows it to continue to fulfill a role as one that boasts headquarters for some of the nation's largest domestic producers of oil and natural gas, Dollarhide said.

"Oklahoma has lost close to 100 oil and gas companies and their offices/corporate headquarters to other energy centers across the nation, most notably Houston, Dallas and Denver, over the past 40 years," he said.

Chesapeake Energy merger with Southwestern Energy will create a 'natural gas behemoth'

The merger will create a "natural gas behemoth" capable of tapping numerous arrangements the two have with exporters to get more natural gas overseas to energy-starved markets in Europe and elsewhere, Dollarhide said.

"Being able to export to other places outside of the Lower 48 is a game changer and certainly makes this deal that much more attractive to investors," Dollarhide said.

Despite calls from scientists and environmentalists to restrict the use of natural gas as a future fuel, Dollarhide said he believes the fuel inevitably will play a significant role in meeting global energy needs in the foreseeable future because so much electricity is produced using natural gas.

"It is two steps forward, one step back because natural gas is so plentiful," Dollarhide said.

More details of the Chesapeake-Southwestern Energy merger, from desk to derrick

Chesapeake’ $11.5 billion acquisition of Southwestern − including debt − "is the biggest gas-focused U.S. upstream deal in more than 10 years and reflects emerging confidence around the long-term outlook for the commodity," said Andrew Dittmar, senior vice president for Enverus Intelligence Research Inc. in Austin, Texas, which has an office in OKC.

"With its modest premium and increased exposure to the Haynesville by adding Southwestern’s high-quality acreage, plus financial accretion, the acquisition looks like a winning deal for Chesapeake," he said.

Dittmar said Chesapeake is probably buying Southwestern to add its 286,000 net acres in the Haynesville Shale, which has about 1,300 gross operated drilling locations capable of a 10% return at $3.50 per 1,000 cubic feet gas pricing or less.

"The Haynesville is particularly desirable as an area for Chesapeake to grow its exposure as the play combines high-quality drilling opportunities with proximity to a burgeoning market for gas to feed U.S. (liquified natural gas) exports," he said. "Enverus expects LNG to increase its share of U.S. gas demand from 12% to 20% in 2030 and account for the majority of future demand growth.

"There is about 10 (billion cubic feet per day) of increased LNG export capacity coming online in the next 36 months that should tighten the gap between lower U.S. natural gas prices and a stronger international market."

However, Dittmar said, "While the longer-term outlook for gas prices is good, in the near term the market is likely to remain challenged as supply outstrips demand and storage fills. Low and volatile gas prices have been a significant hindrance to gas M&A (mergers and acquisitions), with just about $6 billion in gas-focused deals transacted in 2023 compared to a massive $186 billion of oil-weighted M&A.

"Chesapeake’s use of stock in the deal, as compared to a cash buyout, helps reduce the commodity price risk for the buyer while allowing the seller to participate in upside. Overall, as an LNG-influenced rise in gas prices near, there should be more enthusiasm from buyers to offer higher prices for assets and companies and drive more gas-weighted M&A."

What government and economic officials think of the Chesapeake Energy-Southwestern Energy merger

• Oklahoma City Mayor David Holt: "It's no secret that Chesapeake's journey has been a bit of a roller-coaster, but out of this deal Chesapeake emerges as the international leader in natural gas. It is really gratifying to see their story evolve into such a positive new chapter, and I think we're all just thrilled to see that chapter written in OKC. Chesapeake has meant so much to our city on so many levels. We remain grateful for that legacy and the good works yet to come."

• Christy Gillenwater, president and CEO of the Greater Oklahoma City Chamber: "Chesapeake Energy is an important anchor of Oklahoma City's business community. This acquisition will double the market size of the company, and it secures future employment here. Seeing a company like Chesapeake Energy grow in our community and have a strong future is important. It's great to see."

• State Sen. Kristen Thompson, R–Edmond: “This merger is an exciting opportunity for the state and the company. ... The company has been an incredible partner in employing Oklahomans and investing in the communities they are in. ... After the merger is complete, my desire is to meet with executives to discuss what the state can do to ensure the company stays here and flourishes now and in the future.”

Jack Money is an author and award-winning reporter who has covered local and state government, development and construction of the Oklahoma City National Memorial & Museum and the energy and agriculture industries. Money currently covers Oklahoma County government and Edmond for the The Oklahoman.

Senior Business Writer Richard Mize has covered housing, construction, commercial real estate and related topics for the newspaper and Oklahoman.com since 1999. Contact him at rmize@oklahoman.com. Sign up for his weekly newsletter, Real Estate with Richard Mize. You can support Richard's work, and that of his colleagues, by purchasing a digital subscription to The Oklahoman. Right now, you can get 12 months of subscriber-only access for $1 a month.

This article originally appeared on Oklahoman: Chesapeake Energy merger with Southwestern to 'redefine' the industry