UPDATE 5-Chesapeake seeks US natgas crown with $7.4 bln deal for rival

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Gas producers aim to take bigger role in US LNG exports

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Chesapeake rebuilding gas output since emerging from Ch 11

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Chesapeake shareholders to own 60% of combined company

(Adds comments from conference call in paragraphs 3, 4 and 14, updates share price in paragraph 6, adds new analysts comment in paragraph 8)

By Arunima Kumar and Arathy Somasekhar

HOUSTON, Jan 11 (Reuters) - Chesapeake Energy agreed to buy smaller rival Southwestern Energy in an all-stock transaction valued at $7.4 billion, a deal that will make it the largest independent U.S. natural gas producer.

The deal disclosed on Thursday is a bet natural gas prices will stay off the multi-year lows they touched last year as demand from proposed new U.S. liquefied natural gas (LNG) export terminals jumps in 2025.

"By combining our companies, we are LNG-ready," said Chesapeake Chief Executive Domenic Dell’Osso, who will hold the top job at the yet-to-be-named combined company. The purchase is expected to close next quarter.

Expectations for rising gas demand from LNG exporters "created some impetus to move," Dell’Osso said on a call to discuss the deal. The new company expects up to 20% of its future production will be tied to international pricing, he said.

Chesapeake's offer of $6.69 per Southwestern share represented a discount of about 3% to the stock's last close, according to Reuters calculation. Shares have gained about 2% since Reuters reported in mid-October on the deal talks. Shares of Chesapeake were up 6.2% in morning trading on Thursday.

'IMPROVED POSITION'

The larger output from the combined company "will improve the company's position ... as it relates to unlocking and securing additional LNG opportunities," wrote Matt Portillo, an equity analyst at financial firm Tudor Pickering & Holt.

U.S. gas production in recent years has jumped well above domestic demand, pushing inventories up and reducing profits at gas producers. U.S. gas on Thursday traded around $3 per million British thermal units. Average price last year fell 62% compared to 2022.

The Southwestern bid is the biggest move to date in Chesapeake's efforts to regain its former stature as the largest U.S. gas producer since emerging from bankruptcy restructuring in 2021. Last year, it beefed up its position in the gas-rich shale plays of the U.S. northeast with a $2.5 billion buyout of Chief E&D.

Investment firm Kimmeridge Energy Management, which pushed Chesapeake to move away from oil drilling, is "highly supportive of the merger," it said. The firm has a little over 2% stake in each company.

Most of Southwestern's production is in Appalachia's shale formations in the U.S. East and in the Haynesville shale basin close to U.S. LNG export plants.

The combined company will have production of about 7.9 billion cubic feet equivalent per day (Bcfepd), and leapfrog EQT Corp as the largest independent natural gas exploration and production company in the U.S. by market value and output.

NEW COMPANY NAME

The deal is expected to close in the second quarter and bear a new name, ending the Chesapeake brand almost 35 years after its founding by wildcatters Aubrey McClendon and Tom Ward.

Chesapeake shareholders will own about 60% of the combined company and Southwestern investors the rest.

The deal is the latest in a spate of multi-billion consolidation in the U.S. energy sector as companies seek to secure future production. Among the recent combinations: Exxon Mobil's $60-billion pending offer for shale firm Pioneer Natural Resources and Chevron's $53-billion agreement to buy Hess. Last week, APA Corp agreed to buy Callon Petroleum for $4.5 billion.

(Reporting by Arunima Kumar in Bengaluru and Arathy Somasekhar in Houston; Editing by Sriraj Kalluvila and Barbara Lewis)