Coterra Energy Inc. (NYSE: CTRA) (“Coterra” or the “Company”) today announced it has entered into two separate definitive agreements to acquire certain assets of Franklin Mountain Energy and Avant Natural Resources and its affiliates for aggregate consideration of $3.95 billion, consisting of $2.95 billion of cash and $1.0 billion of Coterra common stock, issued to one of the sellers, subject to certain purchase price adjustments. The cash portion of the consideration is expected to be funded through a combination of cash on hand and borrowings. The transactions are each subject to satisfaction of customary terms and conditions and are expected to close during the first quarter of 2025, with effective dates as of October 1, 2024. Neither acquisition is conditioned on the closing of the other acquisition.
Tom Jorden, Chairman, CEO, and President of Coterra, noted, “We are thrilled to announce the pending acquisition of two high-quality Permian Basin asset packages. These highly accretive acquisitions create an expanded core area in New Mexico that plays to Coterra’s organizational strengths. In addition to adding significant oil volumes in 2025, the acquired assets provide inventory upside to established and emerging oil-weighted formations.”
Mr. Jorden continued, “We have been drilling horizontal wells in Lea County, New Mexico since 2010 and are extremely excited with the recent results and future opportunity across the area. The newly scaled platform provides a long runway for capital efficient development and substantial free cash flow generation. Importantly, we are maintaining an industry-leading balance sheet.”
Highlights
- Creating an additional oil-weighted focus area in New Mexico, with acreage adjacent to our existing footprint
- Highly accretive: >15% accretive to estimated 2025-2027 per share Discretionary Cash Flow and Free Cash Flow, and accretive to Net Asset Value per share
- Disciplined 2025 framework, with expected pro forma reinvestment rate of approximately 50%. Pro forma production expected to be 150-to-170 mbod and 720-to-760 mboed with a total capital budget anticipated at $2,100-to-$2,400 million
- Deep pro forma inventory, with over 15 years of runway in the Permian Basin
- Expect to maintain top-tier balance sheet and liquidity, with estimated year-end 2025 Net Leverage Ratio of 0.6x, which is expected to remain below 1.0x, even in a $55/bbl and $2.50/MMBtu commodity price environment
- Estimate corporate breakeven prices, with Free Cash Flow after the base dividend, to be below $50/bbl WTI and $2.50/MMBtu Henry Hub
- Remain committed to minimum 50%+ return of annual Free Cash Flow to shareholders through base dividends and buybacks
Acquisition Details: Adding scale in New Mexico, creating additional premier core footprint
- Acquisition valued at 3.8x estimated 4Q24 annualized EBITDAX and approximately 13% estimated 2025 Free Cash Flow yield at $70/bbl WTI and $3.00/MMBtu Henry Hub price assumptions
- Coring up position in the northern Delaware Basin with approximately 49,000 net highly contiguous acres concentrated in Lea County, New Mexico, creating a new approximately 83,000 net acre focus area within the Coterra portfolio
- Assets to be acquired include 400-550 net Permian locations, primarily targeting Bone Spring, Harkey, Avalon and the emerging oily Lower Wolfcamp/Penn Shale. Assets to be acquired are expected to generate 1.8x PVI 10 on average, at $70/bbl WTI and $3.00/MMBtu NYMEX price assumptions.
- Increases Coterra’s New Mexico net locations by approximately 75%, and Coterra’s Permian net locations by approximately 25%
- Average lateral length of 9,500 feet
- Acquiring approximately 125 miles of pipeline and other infrastructure, which is expected to enhance netbacks and economics across existing acreage and the new focus area
- Multiple horizons and contiguous drilling spacing units help maximize wells per pad, reduce facilities and infrastructure costs
- Estimate 2025 capital expenditures of $400-to-$500 million, 2025 oil production of 40-to-50 mbopd, and total equivalent production of 60-to-70 mboed for the acquired assets
2025 Pro Forma Coterra Outlook
- Expect to reinvest approximately 50% of Discretionary Cash Flow in 2025 assuming $70/bbl WTI and $3.00/MMBtu Henry Hub
- Estimate 2025 oil production of 150-to-170 mbod, an increase of approximately 49% compared to estimated 2024 mid-point of oil guidance. Standalone Coterra assets are expected to generate 5-10% growth in 2025.
- Total equivalent production of 720-760 mboed, an increase of approximately 11% compared to estimated 2024 mid-point of total equivalent production guidance.
- Expect oil revenue mix of approximately 55-to-60% based on estimated 2025 production and assuming $70/bbl WTI and $3.00/MMBtu Henry Hub
- Estimate $2,100-to-$2,400 million of capital expenditures in 2025, approximately 75% weighted to the Permian Basin
Financing Details
Coterra will fund the acquisitions with $2.95 billion of cash and the issuance of approximately 40.9 million shares of Coterra common stock to certain sellers, which is valued at approximately $1.0 billion. The Company plans to finance the cash portion of the purchase price through a combination of cash on hand and new borrowings.
Advisors
JPMorgan Chase Bank, N.A., PNC Capital Markets LLC, and TD Securities (USA) LLC are providing committed financing for the transaction. Gibson, Dunn & Crutcher LLP is serving as legal advisor to Coterra. Veriten served as independent advisor.
Jefferies LLC is serving as financial advisor to Franklin Mountain Energy. Kirkland & Ellis LLP served as legal advisor to Franklin Mountain Energy.
TPH&Co, the energy business of Perella Weinberg Partners, and Petrie Partners, LLC are acting as financial advisors to Avant Natural Resources. Kirkland & Ellis LLP served as legal advisor to Avant Natural Resources.
Both acquisitions are subject to customary closing conditions and are expected to close in the first quarter of 2025 with an effective date of October 1, 2024. A slide deck related to the acquisitions is available under the “Events & Presentations” page under the “Investors” section of the Company’s website at www.coterra.com. Coterra management will host a live conference call to discuss the acquisitions on Wednesday, November 13, 2024 at 7:30 AM Central Time. Further details are provided at the end of this press release.
