What would a Chesapeake Energy merger mean for massive OKC campus?

With Chesapeake Energy Corp. and Southwestern Energy Co. in Spring, Texas, reportedly in merger talks, a question arises about something important to Oklahoma City, if not to the negotiations themselves, since it amounts to a tiny fraction of what would be a $17 billion deal.

It's Chesapeake's property, which the county assessor says is worth a mere $140 million — or, as someone once said of the office buildings involved with another billion-dollar energy company merger, an amount equal to "an accounting error."

The property concern would be in addition to lost jobs and Chesapeake's philanthropic contributions, among other issues. Chesapeake said it ended 2022 with about 1,200 employees (its latest number), with 59% corporate staff, or about 700, and the rest in the field. It's not clear whether all of its corporate staff is in OKC.

If Chesapeake were to move to Texas, what would become of its 1.5 million square feet of buildings in Oklahoma City? It would not be pretty, like the multiple Georgian-style, red brick office buildings that dominate Chesapeake's corporate campus at NW 63 and Western Avenue.

It would be an ugly blow to the metro-area office market, especially in north OKC, although not all of Chesapeake's space is office space.

But first: a merger? More than that, actually, if it comes to pass.

Chesapeake-Southwestern merger 'could reshape the U.S. natural gas industry'

Chicago-based Zacks Equity Research reviewed the background of the reported deal, first disclosed last fall by Reuters, which reported it as imminent last Friday, relying on an anonymous source. Chesapeake declined to comment to The Oklahoman.

Zacks said Chesapeake approached Southwestern with an eye toward acquiring it.

"The move is significant as it represents Chesapeake’s continued focus on natural gas, especially in light of the increasing global demand for liquefied natural gas shipments from the U.S. Gulf Coast," Zacks said.

Chesapeake-Southwestern merger would create the largest natural gas producer in the United States

Zacks said the merger would create the largest energy exploration and production company concentrating on natural gas in the United States.

"The consolidation serves not only as a growth strategy for Chesapeake but also as a milestone in its post-bankruptcy resurgence, following its reemergence in 2021 with a renewed focus on natural gas over oil," Zacks said. "An essential element of the merger lies in the geographical proximity and operational alignment of the two companies."

Both companies have production in the Appalachian shale formations in Pennsylvania, West Virginia, and Ohio, and the Haynesville shale in northwest Louisiana, northeast Texas, and southwest Arkansas.

Headquarters of Chesapeake Energy, OKC, and Southwestern Energy, Spring, Texas, compared

Chesapeake Energy, with headquarters at 6100 N Western Ave., sprawls across a campus with 17 buildings of various sizes, built from 2002 to 2014 south of NW 63 between Western Avenue and Classen Boulevard.

In 2018, the campus was valued at $203 million; Chesapeake sued the assessor's office; after settlement, the value was reduced to $140 million for 2018, 2019 and 2020, where it remains, according to the assessor's office.

Southwestern Energy is the anchor tenant in a 10-story, 590,000-square-foot, Class A office building, built in 2015.

Chesapeake has enough vacant space for Southwestern's front office if it relocated to Oklahoma City. The Texas building appears to have enough room for Chesapeake if it were moved.

What if Chesapeake Energy's campus in Oklahoma City emptied?

Specialists say that if the Chesapeake campus were vacated, the Georgian-style brick buildings likely would be converted from offices to some other use, such as apartments or education. But not all of it would land on the market, whatever use, unless leases were bought out.

Service Oklahoma leases space in Chesapeake's Building No. 4 at 6015 N Classen Blvd., and Midland, Texas-based Diamondback Energy leases space in Building 13 at 900 NW 63, totaling about 200,000 square feet.

About 300,000 to 500,000 square feet of space is being offered on the market, according to Cushman & Wakefield-Commercial Oklahoma, the brokerage with the listings.

Chesapeake occupies about 350,000 square feet of its space, plus garage parking, which would be vacated immediately if the company moved, said Brent Conway, senior vice president, managing director and office specialist at Newmark Robinson Park.

"The impact would add a new level of challenge into a submarket that is still trying to backfill space that Chesapeake has already put onto the market," Conway said.

Unusual style and layout of Chesapeake Energy's campus would make it difficult to backfill as a whole

It's a specialized space for reasons other than the college campus look of the Georgian buildings.

"There’s a central plant making it very challenging to break into stand-alone multitenant/single-tenant buildings. However, a portion of it could be absorbed for multi-housing, but not all of it, Conway said.

Bottom line?

"In the end, there are a number of uses that could backfill the hypothetically vacated space," Conway said "Note 'uses' but not users. In a perfect world, it would be absorbed in one chunk as a corporate campus by a new-to-market user. Otherwise, it’s only going to create another hole to fill.

"Adding another 300,000-square-foot of vacancy into our inventory definitely moves the needle the wrong way – but it doesn’t spell disaster."

Merger talks calls to mind Anadarko Petroleum's purchase of Kerr-McGee Corp.

Oklahoma City's office market dodged a bullet with another major energy company merger:

Anadarko Petroleum purchased storied Kerr-McGee Corp., a downtown presence in Oklahoma City for generations, in 2006.

The purchase nearly left 1 million square feet of office space vacant all at once, including Kerr-McGee's 30-story, 500,000-square-foot tower at 123 Robert S Kerr Ave., when Anadarko moved the former Kerr-McGee operations to its own HQ in The Woodlands, Texas.

The next year, Chesapeake and SandRidge Energy Inc., struck a two-step deal to keep the tower in use and off the market.

First, Chesapeake acquired from Anadarko some natural gas plays in west Texas, western Oklahoma and northwest Arkansas., plus the tower and other former Kerr-McGee buildings downtown.

Then, Chesapeake turned around and sold the buildings to SandRidge, keeping about 700,000 square feet of space off the market. SandRidge spent $100 million renovating the buildings and renamed it SandRidge Commons.

The property was later acquired by the state Commissioners of the Land Office, which renamed it Strata Commons and leased it to numerous state agencies.

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Senior Business Writer Richard Mize has covered housing, construction, commercial real estate and related topics for the newspaper and Oklahoman.com since 1999. Contact him at rmize@oklahoman.com. Sign up for his weekly newsletter, Real Estate with Richard Mize. You can support Richard's work, and that of his colleagues, by purchasing a digital subscription to The Oklahoman. Right now, you can get 12 months of subscriber-only access for $1 a month.

This article originally appeared on Oklahoman: Could a Chesapeake Energy merger with Southwestern empty OKC campus?