(Reuters) -U.S. gas producer Southwestern Energy Co on Wednesday agreed to buy privately held Indigo Natural Resources LLC for about $2.7 billion, bulking up its operations to take advantage of rising natural gas prices.
Dealmaking has risen in the energy sector on the back of a vaccine-led rebound in travel demand, with producers also looking to scale up and cut costs after the COVID-19 pandemic caused one of the industry’s worst downturns.
Indigo is the third-largest private natural gas producer in the United States with net production of 1 billion cubic feet of gas per day from Louisiana’s Haynesville basin.
Southwestern had 2020 gas production of about 694 billion cubic feet across Pennsylvania, West Virginia and Ohio, and was the country’s third-largest gas producer, according to Enverus data.
Southwestern in August bought Montage Resources for about $865 million to expand its footprint in the Appalachia, the biggest shale gas basin in the United States.
Wednesday’s deal also comes on the heels of EQT Corp’s plans to buy Appalachian basin rival Alta Resources last month and Pioneer Natural Resources’s agreement in April to buy privately held DoublePoint Energy for $6.4 billion.
The deal consideration for Indigo will comprise of $400 million in cash, about $1.6 billion in Southwestern common stock and $700 million in debt.
Southwestern expects general and administrative cost savings of about $20 million from the deal, along with further operational and financial savings.
The company also doubled its free cash flow target for 2022 to $47 million and expanded its 2022 estimated margins by 12%, citing the proximity of Indigo’s assets to the Gulf Coast LNG corridor.
Demand for super-cooled liquefied natural gas has surged in recent years as large energy-consuming nations like China and India wean themselves off dirtier coal.
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