Southwestern goes all in on gas production with $2.7 billion Haynesville acquisition

Merger and acquisition activity show no signs of slowing down in 2021 as Northeast producer Southwestern Energy acquires one of the largest Haynesville operators for $2.7 billion, bringing total US shale M&A activity to nearly $30 billion year to date.

On June 2, Southwestern announced it had entered into a definitive agreement to acquire Hayneville producer Indigo Natural Resources for $2.7 billion. The transaction is slated to close early during the fourth quarter of 2021.

"Our footprint now extends across the two premier natural gas basins in the country and includes top-tier dry gas and liquids rich inventory," said Southwestern CEO Bill Way, during a June 2 conference call. "The value of this high-quality inventory is further enhanced by our diverse transportation portfolio providing access to premium markets in the Gulf Coast and within Appalachia."

Indigo holds 149,000 net surface acres in Louisiana's Haynesville Shale. With Indigo's 2022 estimated production at 1.1 Bcf/d, Southwestern's total production, including its Marcellus and Utica acreage, is expected to top 4 Bcf/d. Southwestern looks to improve its transportation costs to industrial and LNG markets in the Southeastern US through the acquisition.

"We expect to see immediate improvements to key cash metrics," Way said. "The high return dry gas inventory improves our basis differentials with close access to key LNG export market."

The acreage is located in close proximity to Sabine Pass, Cameron and Calcasieu Pass LNG facilities.

"We currently have arrangements in place with LNG operators in the Gulf," Way said. "The acquired inventory is highly economic due to its tier-one rock and proximity to industrial and LNG markets."

Southwestern will hold massive amounts of acreage in the most active gas plays in the US. Rigs within all the major gas basins have all increased this year, with the Utica gaining the most, nearly doubling its rig count from December, according to S&P Global Platts Analytics. The Haynesville remains the most active of the gas basins, with a rig count in the mid 50's.

The drilled-but-uncompleted well inventory has steadily declined since 2019, with the Utica falling by more than 50% this year to under 60. DUCs within the Haynesville and Marcellus have remained quite steady from last year with only slight declines.

Rigs within the major gas basins have all increased this year, with the Utica gaining the most, nearly doubling its rig count from December. The Haynesville remains the most active of the gas basins, with a rig count in the mid-50s.

The acquisition follows several large deals made during the second quarter of 2021, including Cimarex Energy and Cabot Oil and Gas for $8.5 billion, Bonanza Creek merging with Extraction Oil and Gas for $2.6 billion and EQT purchasing the Marcellus assets of Alta Resources for $2.9 billion.

It brings year-to-date M&A activity among US shale producers to $28.3 billion, which puts 2021 on track to outpace last year's $41.1 billion. M&A activity was slow to start the year, with only a small number of deals during the first quarter. However, the second quarter had a number of large deals.