Chesapeake Energy Corporation and Southwestern Energy to Combine to Accelerate America's Energy Reach

OKLAHOMA CITY and SPRING, Texas, Jan. 11, 2024 /PRNewswire/ -- Chesapeake Energy Corporation (NASDAQ: CHK) and Southwestern Energy Company (NYSE: SWN) today announced that they have entered into an agreement to merge in an all-stock transaction valued at $7.4 billion, or $6.69 per share, based on Chesapeake's closing price on January 10, 2024. Under the terms of the agreement, Southwestern shareholders will receive 0.0867 shares of Chesapeake common stock for each share of Southwestern common stock outstanding at closing.

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• Chesapeake Energy
• Southwestern Energy

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 Bcfe/d(1) with more than 5,000 gross locations and 15 years of inventory.

• Annual operational and overhead synergies of approximately $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 utilization 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 maximize 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 GHG emissions by 2035, transparent disclosure on measurable targets, investment in low-carbon solutions, and social and governance excellence.

⁽¹⁾ Third quarter 2023 actual production for CHK and SWN from public filings; Excludes Eagle Ford

"This powerful combination redefines the natural gas producer, forming the first U.S. 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 Chief Executive Officer. "The world is short energy and demand for our products is growing, both in the U.S. and overseas. We will be positioned to deliver more natural gas at a lower cost, accelerating America's energy reach and fueling a more affordable, reliable, and lower carbon future. I look forward to leading the talented workforce of the combined organization to accelerate the long-term value opportunity for our shareholders, employees, and all stakeholders."

Southwestern President and Chief Executive Officer 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."

Transaction Details

Under the terms of the agreement, Southwestern shareholders will receive a fixed exchange ratio of 0.0867 shares of Chesapeake common stock for each share of Southwestern common stock owned at closing. At this exchange ratio and the respective share prices on January 10, 2024, the combined company would have an enterprise value of approximately $24 billion. Pro forma for the transaction, Chesapeake shareholders will own approximately 60% and Southwestern shareholders will own approximately 40% of the combined company, on a fully diluted basis.

The combination has been approved by the boards of directors of both companies. The transaction, which is subject to customary closing conditions, including approvals by Chesapeake and Southwestern shareholders and regulatory clearances, is targeted to close in the second quarter of 2024.

Governance

Following the merger, the board of directors of the combined company will increase to 11 members and will initially be comprised of seven representatives from Chesapeake and four representatives from Southwestern. Mike Wichterich will serve as Non-Executive Chairman and Nick Dell'Osso as President and Chief Executive Officer of the combined company. The combined company will be headquartered in Oklahoma City while maintaining a material presence in Houston and will assume a new name upon closing.

Advisors

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.

Conference Call Details

The companies plan to host a joint conference call and webcast on January 11 at 9:00 a.m. EST to discuss the transaction. Institutional investors and analysts are invited to participate in the call by dialing 1-888-317-6003, or 1-412-317-6061 for international calls, using conference ID 5257732. Other parties are encouraged to participate through each company's website: chk.com, or swn.com.

About the Companies

Headquartered in Oklahoma City, Chesapeake Energy Corporation is powered by dedicated and innovative employees who are focused on discovering and responsibly developing leading positions in top U.S. oil and gas plays. With a goal to achieve net zero GHG emissions (Scope 1 and 2) by 2035, Chesapeake is committed to safely answering the call for affordable, reliable, lower carbon energy.

Southwestern Energy Company (NYSE:SWN) is a leading U.S. producer and marketer of natural gas and natural gas liquids focused on responsibly developing large-scale energy assets in the nation's most prolific shale gas basins. SWN's returns-driven strategy strives to create sustainable value for its stakeholders by leveraging its scale, financial strength, and operational execution.

SOURCE Chesapeake Energy Corporation