Chesapeake Energy has agreed to purchase Southwestern Energy in a $7.4 billion all-stock deal, the company announced Thursday, a merger that will cement its status as the nation’s largest natural gas producer at a time when U.S. export capacity is slated to reach an all-time high.
The merged company is slated to produce roughly 7.9 billion cubic feet of natural gas per day, said Chesapeake officials, whose investors will control roughly 60% of the operations (Southwestern shareholders will control the remaining 40%).
“By combining our companies, we are LNG-ready,” Chesapeake CEO Nick Dell’Osso said. The merger is expected to close next quarter.
News of the merger comes as U.S. natural gas exports soared to a record-high last year to meet heightened demand from foreign buyers, particularly in Europe, which increased its imports by 60% in 2022 as countries scrambled to find new buyers to replace Russian fossil fuels.
The U.S., for its part, exported a record 86 million tons of liquefied natural gas last year, according to data from Kpler, underpinned by the demand, as well as the start of operations at the Calcasieu Pass LNG export facility south of Lake Charles. (Freeport LNG in Texas also resumed full operations.)
Though the U.S. just gained status as a net energy exporter for the first time in 2019, its exports have quickly grown, according to the U.S. Energy Information Administration. By the end of 2023, the U.S. exported 86 million tons of LNG globally, beating out longtime LNG suppliers Qatar and Australia as the world’s largest exporter of the chilled natural gas.
But 2023 appears to be just the tip of the iceberg for U.S. LNG exports: The EIA projected that North American LNG export capacity will more than double by 2027, underpinned in part by strong European demand.
Meanwhile, more than 70 million tons per year in baseload LNG export capacity is currently under construction in the U.S., according to a fresh report from the Center for Strategic and International Studies.
This rate of growth has left lawmakers scrambling to catch up and voice their concerns. In November, a group of 60 lawmakers led by Sen. Jeff Merkley (D-OR) urged the Department of Energy to update how it determines whether LNG export projects are in the “public interest,” voicing concerns that the current method of approval “does not fully or accurately consider how LNG exports negatively impact the climate, environmental justice communities, or increase domestic energy prices.”
To date, the lawmakers noted, the Department of Energy has never rejected an LNG export application on these bases, arguing that its “case-by-case approach to approvals ignores the aggregate impact that the explosive growth in U.S. LNG exports is having on climate, communities, and our economy.”
Others struck a more optimistic tone.
The merger “is the biggest gas-focused US upstream deal in more than 10 years and reflects emerging confidence around the long-term outlook for the commodity,” Andrew Dittmar, an analyst at Enverus, told the Financial Times.
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The deal is slated to close in the second quarter of 2024, at which point the joint company will assume a new name, officials said.
The Chesapeake-Southwestern deal is the latest in a string of billion-dollar LNG-focused acquisitions in the U.S., including Exxon Mobil’s $60 billion purchase of Pioneer Natural Resources in October and Chevron’s agreement the same month to purchase Hess for $53 billion.