Latest U.S. energy merger creates $ 17 billion oil and gas group
The latest deal in a wave of US energy consolidation was announced on Monday, with shale oil producer Cimarex Energy and Cabot Oil & Gas revealing a ‘merger of equals’ that will create a group with an enterprise value of $ 17 billion of dollars.
The combination brings together Cimarex’s oil assets in the prolific Permian shale field of western Texas and New Mexico, and Cabot’s acreage in the Marcellus Shale, northeastern Pennsylvania, the world’s largest gas field. American.
“This transformational merger will combine our leading assets and advance our common goal of delivering superior returns to investors,” said Thomas Jorden, CEO of Cimarex.
Dan Dinges, Managing Director of Cabot, said the deal “would create a diverse, free cash flow driven energy company with the scale, inventory and financial strength to thrive through business cycles. commodity prices ”.
The combined debt of the two companies is around $ 3.3 billion, according to S&P Global Market Intelligence, while they each had a market capitalization of around $ 7.1 billion before the deal was announced.
The merger is the latest in a string of deals signed in recent months as the US oilfield recovers from last year’s pandemic-induced crude price rout, which bankrupted many oil companies and reversed years of growth in US crude production.
Since the start of the fourth quarter of last year, approximately $ 50 billion in deals have been completed. Last month, Pioneer Natural Resources purchased backed by private equity DoublePoint Energy in a $ 6.4 billion all-stock deal and EQT Corporation, another gas producer from Marcellus, said it was buying Alta Resources for nearly $ 3 billion.
Leaders of the U.S. shale industry, disgraced on Wall Street after years of overspending, debt-fueled drilling and significant losses, promised they will henceforth give priority to returns and shareholder profitability over further increases in supply.
the the promise has mostly kept, with producers avoiding another drilling spurt despite a rebound in oil prices, instead using the windfall to repair balance sheets, reduce liabilities and repay capital. The mergers were mostly carried out using equity, not cash.
Analysts said closing the deal remains focused on cash flow, a trend aided by a 70% rise in U.S. oil prices since November.
“This is the kind of consolidation large investors are looking for,” said Andrew Gillick, chief executive and energy sector strategist at consultancy Enverus. Cabot was a prize for Cimarex, he suggested, delivering “stable production, cost reductions and a cash flow machine.”
Cabot had been a high profile target for months.
Cimarex and Cabot said the combined company will generate cumulative free cash flow of $ 4.7 billion between 2022 and 2024 at roughly current oil and gas prices. The new company could supplement an annual dividend of $ 0.50 with a variable payout equivalent to at least half of the quarterly cash flow, they said.
Cimarex shareholders will receive just over four Cabot shares for each Cimarex share. They will own 50.5 percent of the new company on a diluted basis. The companies said the deal is expected to be completed in the fourth quarter of 2021.
The new company, which has yet to be named, will be based in Houston. JPMorgan and the law firm Baker Botts advise Cabot. Tudor, Pickering, Holt & Company and the law firm Wachtell, Lipton, Rosen & Katz advise Cimarex.