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FTC Request Delays CHK-SWN Merger

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Chesapeake Energy (CHK) and Southwestern Energy (SWN) have postponed the closing date of their E&P ‘super-merger’ following a request from the Federal Trade Commission (FTC). The move was expected by East Daley Analytics amid increased regulatory scrutiny of E&P deals.

The FTC submitted requests last Thursday (April 4) to each company for additional information, CHK and SWN notified in separate 10-K filings. The move by the FTC triggers an automatic 30-day waiting period for the companies to comply. As a result, the producers have pushed back the expected close of the merger to 2H24 from an initial target of 2Q24.Picture3-Apr-08-2024-09-48-15-9051-PM

East Daley Analytics called out the ambitious timeline to close the deal when CHK and SWN announced the $17B merger in January. We expected delays based on the large share of production resulting from the combo in the Haynesville and Appalachia basins, as well as the scrutiny EQT experienced for its acquisition of Tug Hill Operating in the Northeast.

We laid out the bull case and bear case for the midstream sector if regulators allow the CHK-SWN merger to move forward. Chesapeake and Southwestern together produced ~7.7 Bcf/d of natural gas in 4Q23, accounting for ~7% of Lower 48 gas production. No doubt, the outcome will impact practically all leading midstream companies in Appalachia and the Haynesville.

The figure, available from data in the “Producer to G&P System” profile in Energy Data Studio, breaks down Chesapeake and Southwestern gathering volumes by midstream system. The top midstream providers for the two include DTM Midstream (DTM), Enterprise Products (EPD), Energy Transfer (ET), MPLX and Williams (WMB).

Although a SWN-CHK combo would have a lower share of Appalachia production than EQT-Tug Hill, the combined firm would have an even larger share in the Haynesville, a basin poised for growth to feed increasing LNG demand. Thus, East Daley would expect similar, if not a higher level of anti-trust scrutiny, than the EQT-Tug Hill acquisition. – Ajay Bakshani, CFA and Andrew Ware Tickers: CHK, DTM, EPD, EQT, ET, MPLX, SWN, WMB.


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