US-based natural gas producer Chesapeake Energy is in preliminary talks to acquire rival natural gas producer Southwestern Energy, reported Reuters, citing people familiar with the matter.

Southwestern Energy is estimated to have a stock market value of $12bn, including debt.

Chesapeake has held on-and-off discussions over a potential combination with Southwestern for months, reported Bloomberg News, citing people familiar with the matter.

The sources said that a final decision has not been made and Chesapeake might choose not to pursue a deal.

Chesapeake is expected to explore other options including potential acquisitions. It may also consider pursuing a different target.

If the talks between the parties materialise, the resulting company would overtake EQT as the US’ largest natural gas-focused exploration and production company by market value, reported Reuters, citing the sources.

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By GlobalData

Southwestern owns production assets, most of which are located in Appalachia’s shale formations and the Haynesville basin in Louisiana, where Chesapeake also owns assets.

Chesapeake, which has been acquiring small rivals in the past two years, expects a potential acquisition of Southwestern to be transformative.

Kimmeridge Energy Management, which owns a 2% stake in Chesapeake, welcomed the deal talks with Southwestern Energy.

Kimmeridge managing partner Mark Viviano was quoted by Reuters as saying: “A potential merger between Chesapeake and Southwestern aligns with our views on industry consolidation, given the high degree of operational overlap, opportunity for material synergies and valuation re-rating opportunity.”

Since emerging from bankruptcy in 2021, Chesapeake has been divesting its oil-producing assets to shift its focus onto natural gas assets.

In August 2023, Chesapeake agreed to divest its remaining oil and gas assets in the Eagle Ford area in South Texas, US, to SilverBow Resources for $700m.