U.S. natural gas producer Chesapeake Energy Corp. has approached Southwestern Energy, a peer valued by the stock market at $12 billion including debt, about a potential acquisition, people familiar with the matter said.

Were the two companies to combine, they would overtake EQT Corp. as the largest natural gas-focused E&P company in the U.S. by market value, at a time when shale companies are seeking scale and efficiencies.

Southwestern's shares ended trading on Oct. 17 up 8.3% at $7.33 on the news, at their highest finish in almost a year. Chesapeake's shares closed up 0.7% at $89.59.

Chesapeake's talks with Southwestern are preliminary, with no certainty the two sides will reach a deal, the sources said. Chesapeake could explore other potential acquisitions, and may end up pursuing a different target, the sources added.

The sources asked not to be identified because the matter is confidential. Chesapeake and Southwestern did not immediately respond to requests for comment.

An acquisition of Southwestern would be transformative for Chesapeake, which has been snapping up small rivals in the last two years. The two companies are neighbors; most of Southwestern's production is in Appalachia's shale formations and the Haynesville basin in Louisiana, where Chesapeake also operates.

The deal would also be a reversal of sorts. Southwestern acquired some of its acreage in West Virginia and Pennsylvania from Chesapeake for $5.4 billion in 2014.

In 2021, Chesapeake emerged from a bankruptcy which epitomized the boom and bust of debt-laden exploration and production companies that expanded aggressively in the shale patch. Since then, Chesapeake has been shedding oil-producing assets to focus on its competence in natural gas. It has a market value including debt of about $13 billion.

Kimmeridge Energy Management, the activist investment firm that pushed Chesapeake last year to move away from oil drilling and remains a shareholder with a 2% stake, welcomed the deal talks.

"A potential merger between Chesapeake and Southwestern aligns with our views on industry consolidation, given the high degree of operational overlap, opportunity for material synergies and valuation re-rating opportunity," Kimmeridge managing partner Mark Viviano said in a statement.

U.S. natural gas prices have been sluggish in recent months, as oversupply and warmer weather erode producers' profitability. Some analysts expect prices to go up in the next few months, as a pick-up in U.S. natural gas exports creates more domestic scarcity.

Dealmaking in the energy-producing sector has been heating up as companies race to secure the most lucrative acreage. Exxon Mobil Corp. last week agreed to acquire Pioneer Natural Resources for $60 billion in stock, placing a big bet on the Permian basin, the biggest U.S. oilfield.