In a well-foreshadowed transaction, natural gas producer Chesapeake Energy Corp. (CHK) announced the $7.4 billion, all-stock purchase of Houston-based competitor Southwestern Energy Co. (SWN) on Thursday, Jan. 11, signaling another critical step in the slow-moving consolidation of Louisiana’s Haynesville Shale.
While the deal could bring about some undesired déjà vu from the buyer’s not-so-distant M&A past, which helped lead it into bankruptcy in June 2020, at least one investor is confident Chesapeake is not destined to repeat its painful history.
“Chesapeake’s previous deals were aimed at growing the company simply for the sake of growth,” said Mark Viviano, managing partner of Kimmeridge Energy Engagement Partners, the public investment unit of private alternative asset manager Kimmeridge Energy Management Co. LLC. “Deals like the Whitehorse acquisition from 2018 were examples of Chesapeake expanding in areas in which they didn’t have a lot of previous assets.”
On the other hand, the acquisition of Southwestern “will expand Chesapeake’s current geographical holdings and increase the company’s scale, something energy companies need to remain competitive,” he added.
Viviano’s comments refer to Chesapeake’s $4 billion purchase of WildHorse Resource Development Corp. from NGP Energy Capital Management LLC and Carlyle Group LP in February 2019, a deal that added almost $1 billion of additional debt to Chesapeake’s balance sheet only a few years after it aggressively maneuvered to avoid bankruptcy, giving itself a lifeline via several out-of-court restructuring efforts.
Roughly one year after purchasing WildHorse, the company succumbed to a years-long battle to stave off a court-supervised debt restructuring. In doing so, it epitomized the downfall of the growth strategy employed by many shale drillers over the prior decade.
Since it emerged from bankruptcy protection in February 2021, however, Chesapeake has employed a different M&A playbook.
Editor’s note: The original, full version of this Chesapeake-Southwestern article was published Jan. 16, 2024, on The Deal’s premium subscription website. For access, log in to TheDeal.com or use the form below to request a free trial.
If you’re already a subscriber, log in to view this article here.