Chesapeake Energy (CHK) is set to buy Southwestern Energy (SWN) for an all-stock deal valued at $7.4 billion. This would make Chesapeake the top US natural gas producer. Yahoo Finance Anchors Brad Smith and Seana Smith break down the latest development for these two companies and the impact it will have on the energy sector at large.

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Editor's note: This article was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: Chesapeake is set to become the top US natural gas producer as it announces it will buy smaller rival Southwestern Energy in an all-stock deal that's worth about $7.4 billion. Chesapeake shares rising almost 3% on the news, Southwestern falling right now by about 2% here.

Some of the transaction highlights that the company is pointing out, Chesapeake Energy at least. They say that it's gonna be combining high quality large-scale acreage in Appalachia and Haynesville. And the company pro forma has a current net production of approximately 7.9 barrels-- 7.9 billion barrels per day. Well, not barrels per day but more than 5,000 gross locations, 15 years of inventory, and synergies of approximately $400 million, some of the figures that they're tossing out there right now.

SEANA SMITH: Yeah, right. This is gonna add to their ongoing efforts here in the US, estimated 5,000 drilling locations providing 15 years of drilling inventory. It's also a continuation of the theme that we've seen play out within the energy space, something that we have talked to strategists time and time again here at Yahoo Finance over the last several months about more consolidation within the industry, especially coming off of the massive gains that we saw from many of these big energy giants here over the last 18 months or so.

So they're looking to put some of that capital to work. They're doing it through M&A activity. Remember, Exxon buying Pioneer, Chevron buying Hess, Occidental scooping up CrownRock in just the last several months. So this is the latest deal for the energy space.

And you see Chesapeake here really making a move in order to expand some of their exposure with Southwestern here. The acquisition of Southwestern Energy expected to more than triple Chesapeake's approved reserve base and nearly double production.

BRAD SMITH: Just one quick reaction that we got actually out from Fitch Ratings on this. Their rating watch reflecting the reasonable valuation of the all-equity transaction and saying the scale and metrics of the combined entity are commensurate with an investment grade rating here with strong gas positions in Marcellus and Haynesville plays their.