HOUSTON - Coterra Energy Inc. (NYSE: NYSE:CTRA), a Houston-based exploration and production company, revealed on Wednesday that it has agreed to acquire assets from Franklin Mountain Energy and Avant Natural Resources for a total consideration of $3.95 billion. The transaction includes $2.95 billion in cash and $1.0 billion in Coterra common stock, with adjustments to the purchase price anticipated.
These strategic acquisitions are set to bolster Coterra's presence in the Permian Basin, particularly in New Mexico. The company expects the deals to close in the first quarter of 2025, effective from October 1, 2024, provided customary terms and conditions are met. The cash portion of the purchase will be funded through available cash and new borrowings.
Tom Jorden, Coterra's Chairman, CEO, and President, expressed enthusiasm for the expansion in New Mexico, which aligns with the company's core competencies and is expected to contribute significantly to oil volumes in 2025. The assets are projected to offer considerable inventory upside and support capital efficient development and cash flow generation while maintaining a strong balance sheet.
The acquisitions are anticipated to be more than 15% accretive to per share discretionary cash flow and free cash flow for the years 2025-2027. Coterra's pro forma production is expected to range between 150-to-170 thousand barrels of oil per day (mbod) and 720-to-760 thousand barrels of oil equivalent per day (mboed), with a capital budget estimated at $2,100-to-$2,400 million.
Coterra plans to maintain a robust financial position with a projected net leverage ratio of 0.6x by the end of 2025, which is expected to stay below 1.0x even under a $55 per barrel oil and $2.50 per million British thermal units (MMBtu) natural gas price scenario. The company also reaffirms its commitment to returning over 50% of annual free cash flow to shareholders through dividends and buybacks.
The acquired assets include approximately 49,000 net acres in Lea County, New Mexico, and are expected to generate an average Present Value Index (PVI10) of 1.8x at assumed prices of $70 per barrel West Texas Intermediate (WTI) and $3.00/MMBtu Henry Hub. The assets are projected to bring in 2025 capital expenditures of $400-to-$500 million, with oil production ranging from 40-to-50 mbopd and total equivalent production of 60-to-70 mboed.
Coterra's financing for the acquisitions involves issuing approximately 40.9 million shares of common stock and utilizing a combination of cash on hand and new borrowings. JPMorgan Chase (NYSE:JPM) Bank, N.A., PNC Capital Markets LLC, and TD Securities (USA) LLC are providing committed financing for the transaction.
The information in this article is based on a press release statement from Coterra Energy Inc.
In other recent news, Coterra Energy has seen significant developments. The energy company recently reported strong Q3 performance, with a net income of $252 million and total production averaging 669 thousand barrels of oil equivalent per day, surpassing their guidance. Coterra Energy also reduced its capital spending estimates to $418 million, lower than anticipated. Furthermore, the company raised its 2024 oil production guidance to between 107 and 108 thousand barrels of oil equivalent per day.
Piper Sandler revised Coterra Energy's share target upwards to $32, citing the company's strong financial discipline and operational efficiency. This adjustment follows the company's recent financial performance, which showed strong free cash flow due to higher production levels. JPMorgan, on the other hand, revised the company's price target down to $24, maintaining an overweight rating following an updated financial model predicting Coterra Energy's Q4 production and capital expenditures.
Coterra Energy has also demonstrated a commitment to its shareholders, returning 96% of free cash flow via dividends and share repurchases. The company has also established new LNG sales agreements to diversify its revenue, with deliveries starting in 2027 and 2028. Despite operational challenges such as a shift in drilling techniques in the Permian and a temporary halt in drilling in the Marcellus due to low gas prices, Coterra reported increased drilling efficiency and frac pumping hours. These recent developments highlight Coterra Energy's ongoing commitment to high-quality projects and disciplined capital allocation.
InvestingPro Insights
As Coterra Energy Inc. (NYSE: CTRA) embarks on this significant acquisition, InvestingPro data provides additional context to the company's financial position and market performance. With a market capitalization of $18.57 billion, Coterra operates with a P/E ratio of 15.28, indicating a reasonable valuation relative to its earnings.
The company's commitment to shareholder returns is underscored by its dividend history. An InvestingPro Tip highlights that Coterra has maintained dividend payments for 35 consecutive years, demonstrating a long-term commitment to returning value to shareholders. This aligns with the company's stated intention to continue returning over 50% of annual free cash flow to shareholders through dividends and buybacks.
Another InvestingPro Tip notes that Coterra operates with a moderate level of debt, which is particularly relevant given the substantial $3.95 billion acquisition. This moderate debt level suggests that the company may be well-positioned to manage the additional borrowing required for the cash portion of the purchase without overstretching its financial resources.
The company's revenue for the last twelve months stands at $5,499 million, with a gross profit margin of 70.65%. While there has been a revenue decline of 14% over the same period, Coterra's strong margins and profitability outlook support its expansion strategy. The InvestingPro data shows an EBITDA of $3,449 million for the last twelve months, providing a solid foundation for the company's growth plans.
For investors seeking a deeper understanding of Coterra's financial health and market position, InvestingPro offers 7 additional tips, which can be valuable in assessing the potential impact of this acquisition on the company's future performance.
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