Cabot Oil & Gas Corp. and Cimarex Energy Co. announced plans on May 24 to combine in an all-stock “merger of equals” with the two U.S. shale producers banking on a diversified oil and gas portfolio to generate sustainable returns across a wide range of commodity price scenarios.

With Cabot’s approximately 173,000 net acres in the Marcellus Shale and Cimarex’s approximately 560,000 net acres in the Permian and Anadarko basins, the combined business will have a multi-decade inventory of high-return development locations in the premier oil and natural gas basins in the U.S., the companies said in a joint release.

UPDATE:

Cabot, Cimarex ‘Surprise’ Merger Bucks Pure-play Consolidation Trend

“The combination of Cabot and Cimarex will create a free cash flow focused, diversified energy company with the scale, inventory and financial strength to thrive across commodity price cycles,” Dan O. Dinges, chairman, president and CEO of Houston-based Cabot, said in a statement.

Thomas E. Jorden, chairman, president and CEO of Cimarex, headquartered in Denver, added: “We view commodity, geography and asset diversification as strategic advantages that will drive more resilient free cash flow and long-term value creation.”

The combined business, which will operate under a new name, is estimated to have an enterprise value of approximately $17 billion.

Cabot Oil & Gas, Cimarex Energy Combined Asset Map
(Source: Cabot Oil & Gas, Cimarex Energy investor presentation)

Under the terms of the agreement, Cimarex shareholders will receive 4.0146 shares of Cabot common stock for each share of Cimarex common stock owned. At closing, expected in fourth-quarter 2021, Cimarex shareholders will own approximately 50.5% of the combined company with Cabot shareholders owning the remaining 49.5%.

The combined company plans to be headquartered in Houston and maintain its regional offices. Jorden will lead the company as CEO and Dinges will serve as executive chair of the board of directors.

Additionally, Scott Schroeder, Cabot’s current CFO, will serve as CFO of the combined business. The companies said the remainder of the leadership team will include executives from both Cabot and Cimarex.

The free cash flow outlook of the combined company is approximately $4.7 billion from 2022 to 2024 based on $55/bbl WTI oil prices and $2.75/MMBtu Nymex natural gas prices. Plans are for the new business to supplement an annual base dividend of $0.50 per share with a quarterly variable dividend to achieve a target capital return of at least 50% of quarterly free cash flow. 

The companies are also targeting annual general and administrative cost synergies of $100 million beginning within 18 months to two years following the closing.

Cabot and Cimarex also expect for the combined business to build on the two companies’ ongoing ESG efforts by, among other things, continuing to link executive compensation to ESG performance and maintaining strong board oversight of ESG risks and programs.

“We are aligned on our commitment to ESG and sustainability and look forward to bringing our talented teams together to unlock the tremendous potential of this compelling combination,” Jorden noted in his statement.

J.P. Morgan Securities LLC is financial adviser to Cabot for the transaction and Baker Botts LLP is serving as its legal counsel. Tudor, Pickering, Holt & Co. is Cimarex’s financial adviser and Wachtell, Lipton, Rosen & Katz is providing legal counsel.

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