Chesapeake and Southwestern merger creates dominate player in the Haynesville

Addressing Chesapeake Energy and Southwestern Energy’s merger and formation of a new $24 billion natural gas company, Alex Beeker, research director, corporate research for Wood Mackenzie said, “The Haynesville has been in need of a clearer narrative to win investor support and with a new and dominant team planning the Haynesville and Bossier’s future, investors can look to a single E&P to better understand development cadence, inventory longevity, evolving cost of supply and step-out appraisal work.”

According to Wood Mackenzie, pre-deal, the Haynesville had five competing companies all producing between 1 and 2 billion cubic feet per day (bcfd). This merger will create one company that produces 3.3 bcfd, owns over 20% of Haynesville production, controls over 40% through its operated PDP and controls over 600,000 net acres.

Continued Beeker, “Chesapeake management deserves tremendous credit for narrowing its focus post-bankruptcy. Chesapeake sold Powder River and Eagle Ford assets when demand for oil properties was strong, and prices were recovering. The company took an objective look at its portfolio and came to believe that its low-carbon gas assets were much more attractive when paired with an LNG strategy.”  

The combined company cements itself as a supplier of choice to US Gulf Coast LNG exporters seeking international pricing.

According to Wood Mackenzie analysis, Chesapeake has 3 mmtpa (0.4 bcfd) of supply tied to the Asian (JKM) gas price under two heads of agreement with LNG buyers. As E&Ps need both inventory longevity and creditworthiness to support the long-term agreements in this space, adding Southwestern’s scale will allow Chesapeake to extend its resource runway to more than 15 years, improving cash flow reliability and moving it toward an investment grade credit rating. 

“Chesapeake is prioritizing lowering its Haynesville breakevens through team collaboration to make an even more competitive portfolio,” said Robert Clarke, vice president of upstream research/Americas for Wood Mackenzie.  “The pro-forma cost of supply curve – long, flat, and low – is already a compelling asset base in its current form. Flexibility is very important in the face of future gas price volatility and the combined company’s optionality will improve.”

Added Beeker, “This deal is about being a better company in every aspect and that’s a core reason behind rebranding as an entirely new energy player at closing. This deal will change the bar on portfolio mix, market diversification, cost of supply, scale, and environmental stewardship for the wider US gas sector. Others will try and follow just at the time Haynesville M&A is finally waking up.”