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US natural gas companies Chesapeake Energy and Southwestern Energy are to combine in a $7.4bn all-share deal that will create the biggest producer in the country.
The merger between the two companies would be the first big gas tie-up since a recent wave of consolidation in the US energy sector, which until now has focused on oil.
It puts Chesapeake in a better position to benefit from rising global demand for US liquefied natural gas.
The LNG market has grown in importance since the Ukraine war as Europe has sought to replace gas from Russia through pipelines.
Chesapeake and Southwestern operate in the gas-rich Appalachia region in the US north-east and the Haynesville Shale basin in the southern state of Louisiana.
Chesapeake offered $6.69 per Southwestern shares, the company said in a statement on Thursday.
The deal is expected to close in the second quarter, the companies added, pending approval from regulators and shareholders.
They said the deal would generate cost savings of $400mn and would be “immediately accretive to all key per share financial metrics including operating cash flow, free cash flow, cash dividends, and net asset value”.
Combined, the companies will produce about 7.9bn cu ft of natural gas a day, overtaking the current number one producer EQT, which produces about 5.4bn cu ft/d.
As part of the tie-up, the companies said they would build a global marketing and trading presence in Houston “to meet increasing domestic and international LNG demand”.
The merger forms “the first US based independent that can truly compete on an international scale”, said Chesapeake chief executive Nick Dell’Osso.
“The world is short energy and demand for our products is growing, both in the US and overseas.”
Chesapeake has been a prime mover in the shale revolution that has swept the US over the past 15 years, with its valuation rising to $35bn. The company’s late co-founder and chief executive Aubrey McClendon became the best-paid US executive in 2008, according to Fortune magazine.
But an ill-timed move into oil led to its bankruptcy as the Covid-19 pandemic disrupted the industry in 2020. It emerged from bankruptcy the following year and has since sought to refocus its portfolio on gas.
Less of a household name, Southwestern was formed in Arkansas ahead of the Depression.
It played a leading role developing the Fayetteville shale basin in Arkansas and Oklahoma before expanding into Appalachia and the Haynesville in recent years.
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