Chesapeake Energy Corp. and Southwestern Energy agree to merge

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.

Transaction highlights:

• 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 billion ft³-e/d with more than 5000 gross locations and 15 years of inventory.
• Annual operational and overhead synergies of approximately US$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 utilisation 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 maximise 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 greenhouse gas 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 US-based independent that can truly compete on an international scale. 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,” said Nick Dell'Osso, Chesapeake's President and CEO. “The world is short energy and demand for our products is growing, both in the US and overseas. We will be positioned to deliver more natural gas at a lower cost, accelerating America's energy reach and fuelling a more affordable, reliable, and lower carbon future. I look forward to leading the talented workforce of the combined organisation to accelerate the long-term value opportunity for our shareholders, employees, and all stakeholders.”

Southwestern President and CEO, Bill Way, added: “I want to thank the entire Southwestern team for positioning the company to be part of this transformational combination. 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.”

The transaction, which is subject to customary closing conditions, including approvals by Chesapeake and Southwestern shareholders and regulatory clearances, is targeted to close in 2Q24.

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.

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/15012024/chesapeake-energy-corp-and-southwestern-energy-agree-to-merge/