Chesapeake Energy (NASDAQ:CHK) and Southwestern Energy (NYSE:SWN) are expected to announce a $17 billion merger to create one of the largest natural gas producers in the U.S. As per the Wall Street Journal’s report, a deal could be unveiled as early as this week. It seems worthwhile to mention that SWN rose more than 7% on Friday, and more in after-hours trading.
Southwestern boasts a robust presence in the Haynesville and Appalachia basins, while Chesapeake has a stronghold in the Marcellus and Eagle Ford shales. The merger would enable the combined entity to achieve greater operational efficiency. The new entity will have more production capability, producing more than 8 billion cubic feet of natural gas every day.
Investors should note that the merger talks come at a time when demand for natural gas is growing. This is because it is considered a cleaner-burning alternative to traditional fossil fuels.
Consolidation Wave
The oil and gas industry is undergoing a period of consolidation, with several major acquisition announcements made recently. The strong cash position of these companies, buoyed by soaring oil prices in the post-pandemic era, supports their expansion strategies.
One of the latest deals includes APA Corporation (APA) acquiring its rival oil company, Callon Petroleum. The deal strengthens APA’s presence in the lucrative Permian Basin.
Among the major deals announced last year, Exxon Mobil (XOM) revealed plans to acquire Pioneer Natural to create America’s largest shale producer in the Permian Basin. Furthermore, in late October, Chevron (CVX) disclosed plans to buy Hess Corp. to gain access to HES’ assets located in Guyana and the Bakken Shale.
Is CHK a Good Stock to Buy?
Wall Street analysts are cautiously optimistic about Chesapeake Energy. It has a Moderate Buy consensus rating based on seven Buys and seven Holds. The average stock price target of $99.85 implies 26.1% upside potential.
