Shale consolidation continues as Cabot, Cimarex ink $7.4B merger

By Simon Casey on 5/24/2021
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(Bloomberg) --Cabot Oil & Gas Corp. agreed to merge with Cimarex Energy Co., combining two mid-tier shale drillers in an all-stock transaction valued at about $7.4 billion as the U.S. oil and gas sector continues to consolidate.

The deal will give Cabot shareholders about 49.5% of the combined entity, with Cimarex shareholders holding the rest, the companies said Monday in a statement. The newly merged energy producer will be renamed and be based in Houston.

U.S. shale drillers are getting increasingly acquisitive following a sustained recovery in energy prices from the lows seen in 2020. They’re also responding to investor pressure to improve financial and operational performance after a dismal few years.

In common with other recent industry mergers, the combination of Cabot and Cimarex is an almost zero-premium deal. It also addresses investor demands with a heavy emphasis on returning of cash: Cabot-Cimarex will pay a 50-cent-per-share special dividend on the closing of the deal and will introduce a quarterly variable dividend, on top of a regular payout every three months.

Combining Cabot, which operates in the Marcellus shale basin in Appalachia, and Cimarex, which drills in the Permian and Anadarko basins, will lead to the elimination of about $100 million in annual costs, according to both companies.

“A Permian-focused partner would have made far more sense” for Cimarex, Bloomberg Intelligence analysts Talon Custer and Vincent G. Piazza said in a note. “Still, the new E&P will generate robust free cash flow, enhance shareholder distributions and mitigate federal leasehold risk.”

The Cabot-Cimarex merger is the largest U.S. oil and gas deal since Chevron Corp.’s acquisition of Noble Energy Inc. last year, according to data compiled by Bloomberg.

Cimarex investors will receive 4.0146 shares of Cabot common stock for each share of Cimarex common stock owned, The transaction is expected to close in the fourth quarter, subject to regulatory clearance, shareholder approval and other customary closing conditions.

Cimarex shares were little changed at $71.15 at 7:51 a.m. in pre-market trading in New York. Cabot was 1.6% higher at $18.10. 

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