Page 9 - NorthAmOil Week 21 2021

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The merged company
will combine gas
operations in the
Marcellus with oil
acreage in the Permian
Basin.

Cimarex, Cabot announce

surprise $7.4bn merger

US US shale players Cabot Oil & Gas and Cimarex shareholders owning the remaining 50.5%
Energy have announced a merger of equals val- stake, the companies said in a May 24 statement.
ued at roughly $7.4bn. The all-stock transaction The combination represents a less than 1% pre-
will create a company with an enterprise value of mium to Cimarex’s May 21 close, in line with a
around $17bn, to be named at a later date. number of other recent almost zero-premium
The transaction has been described as a sur- mergers.
prising one, given the lack of overlap between KeyBank analysts expressed their concern
the two companies’ operations. Cabot is a Mar- over the fact that the deal will turn Cimarex
cellus shale-focused gas driller, while Cimarex into a gas producer, thus taking away any ben-
produces predominantly tight oil, with its assets efits to be gained from rising oil prices. Indeed,
mainly located in the Permian Basin and the US Cimarex’s commodity mix will shift to 79% gas,
Mid-Continent. from 42% previously. KeyBank also highlighted
News of the deal comes amid a number of the low premium involved in the transaction.
other major mergers and acquisitions (M&As) However, Cabot’s CEO, Dan Dinges, told
that are currently being finalised in the US oil Reuters that the combined entity could hold
and gas industry. However, the majority of pro- appeal for shareholders in a way that neither
ducers have tended to favour deals that expand company has been able to achieve individually.
their core footprints. “Both companies do bring something unique KeyBank analysts
“While public company consolidations to the table as they work to add up to an accre-
including mergers of equals have been a key tive deal,” said Dittmar. “Cabot has low debt and expressed their
theme of the post-COVID M&A market, this strong current cash flow, improving Cimarex’s
deal comes as a bit of a surprise and may have pro-forma balance sheet and helping fund the concern over
a less clear story to tell investors,” commented dividend plans. Cabot’s perceived weakness
Enverus’ senior M&A analyst, Andrew Dittmar. was its longer-term inventory runway. Adding the fact that the
“Past mergers have generally involved in-basin Cimarex’s Delaware Basin position addresses deal will turn
consolidation with its easy readthrough to econ- inventory concerns while adding the ability to
omies of scale and efficient operations. Public shift capex between gas and oil, depending on Cimarex into a
E&Ps have been more likely to exit towards sin- the relative performance of the commodities.”
gle basin status than strike out into new areas, This is in line with Cimarex CEO Thomas gas producer.
as Oasis did with its sale of Permian assets last Jorden’s comment to Reuters that he expected
week.” the merged company to be more resilient to
By contrast, he pointed to the fact that there commodity price cycles.
are no in-basin synergies or general and admin- Cabot owns roughly 173,000 net acres
istrative (G&A) savings to be gained from the (700 square km) in the Marcellus shale, while
Cimarex-Cabot deal. Nonetheless, the two Cimarex holds around 560,000 net acres (2,266
companies anticipate achieving cost savings of square km), mainly in the Permian Basin, with
$100mn around 18-24 months after the transac- some of its acreage also located in the Anadarko
tion closes in the fourth quarter of 2021. Basin. Dittmar said it looks as though the Ana-
The deal will give Cabot shareholders about darko position will play a minor role in the com-
49.5% of the combined entity, with Cimarex bined company.™

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