U.S. natural gas producer Chesapeake Energy Corp has approached Southwestern Energy, a peer valued by the stock market at $12 billion including debt, about a potential acquisition, people familiar with the matter said.
Were the two companies to combine, they would overtake EQT Corp as the largest natural gas-focused exploration and production company in the U.S. by market value, at a time when shale companies are seeking scale and efficiencies.
Southwestern’s shares rose 8% to $7.38 in Tuesday afternoon trading in New York on the news, hitting their highest level in almost a year. Chesapeake’s shares rose 1.5% to $90.33.
Chesapeake’s talks with Southwestern are preliminary, with no certainty the two sides will reach a deal, the sources said. Chesapeake could explore other potential acquisitions, and may end up pursuing a different target, the sources added.
The sources asked not to be identified because the matter is confidential. Chesapeake and Southwestern did not immediately respond to a request for comment.
An acquisition of Southwestern would be transformative for Chesapeake, which has been snapping up small rivals in the last two years. The two companies are neighbors; most of Southwestern’s production is in Appalachia’s shale formations and the Haynesville basin in Louisiana, where Chesapeake also operates.
The deal would also be a reversal of sorts. Southwestern acquired some of its acreage in West Virginia and Pennsylvania from Chesapeake for $5.4 billion in 2014.
In 2021, Chesapeake emerged from a bankruptcy which epitomized the boom and bust of debt-laden exploration and production companies that expanded aggressively in the shale patch. Since then, Chesapeake has been shedding oil-producing assets to focus on its competence in natural gas. It has a market value including debt of about $13 billion.
U.S. natural gas prices have been sluggish in recent months, as oversupply and warmer weather erode producers’ profitability. Some analysts expect prices to go up in the next few months, as a pick-up in U.S. natural gas exports creates more domestic scarcity.
Dealmaking in the energy-producing sector has been heating up as companies race to secure the most lucrative acreage. Exxon Mobil Corp last week agreed to acquire Pioneer Natural Resources for $60 billion in stock, placing a big bet on the Permian basin, the biggest U.S. oilfield.
(Reporting by David French in New York Editing by Greg Roumeliotis and David Gregorio)