Coterra Announces Accretive Permian Basin Acquisitions

Rhea-AI Summary

Coterra Energy (NYSE: CTRA) has announced two acquisitions in the Permian Basin worth $3.95 billion, comprising $2.95 billion in cash and $1 billion in Coterra stock. The acquisitions include approximately 49,000 net highly contiguous acres in Lea County, New Mexico, creating a new 83,000-net-acre focus area. The deals are expected to close in Q1 2025 with an October 1, 2024 effective date.

The acquisitions are projected to be >15% accretive to 2025-2027 per share Discretionary Cash Flow and Free Cash Flow. Pro forma 2025 production is expected at 150-170 mbod oil and 720-760 mboed total, with a capital budget of $2,100-2,400 million. The company maintains its commitment to return 50%+ of annual Free Cash Flow to shareholders.

Positive

• Highly accretive acquisitions with >15% increase in per share cash flows
• Adds 400-550 net Permian locations, increasing New Mexico locations by 75%
• Expected 49% increase in 2025 oil production compared to 2024
• Strong financial position with projected 0.6x Net Leverage Ratio by end-2025
• Low breakeven prices below $50/bbl WTI and $2.50/MMBtu Henry Hub

Negative

• Significant cash outlay of $2.95 billion requiring new borrowings
• Share dilution through issuance of 40.9 million new shares
• Increased exposure to commodity price risk in New Mexico operations

Insights

Financial Analyst

This $3.95 billion acquisition marks a significant strategic expansion for Coterra in the Permian Basin. The deal structure, combining $2.95 billion cash and $1 billion in stock, is financially prudent and maintains balance sheet strength with projected 0.6x leverage ratio. The transaction metrics are attractive at 3.8x EBITDAX with a 13% free cash flow yield.

The acquisitions are highly accretive, projecting 15%+ accretion to discretionary cash flow and free cash flow per share for 2025-2027. The company's commitment to a 50%+ return of FCF to shareholders through dividends and buybacks remains intact. With breakeven prices below $50/bbl WTI and $2.50/MMBtu Henry Hub, the deal provides solid economics even in a lower commodity price environment.

Energy Industry Analyst

The strategic acquisition significantly enhances Coterra's Permian Basin position, adding 49,000 net highly contiguous acres in Lea County, New Mexico. The operational synergies are compelling, with 400-550 net locations primarily targeting premium formations including Bone Spring and Harkey. The 75% increase in New Mexico locations and 25% boost to Permian inventory provides substantial growth runway.

The infrastructure package, including 125 miles of pipeline, will drive cost efficiencies and enhance returns. The projected 2025 production increase to 150-170 mbod represents a substantial 49% growth in oil output, transforming Coterra's production mix to 55-60% oil revenue at reference prices.

HOUSTON--(BUSINESS WIRE)-- 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 PVI₁₀ 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.

Conference Call Information
Management will host a live conference call to discuss the acquisitions.
Date: Wednesday, November 13, 2024
Time: 7:30 AM CT / 8:30 AM ET
USA / International Toll +1 (646) 307-1963
USA - Toll-Free (800) 715-9871
Canada - Toronto (647) 932-3411
Canada - Toll-Free (800) 715-9871
Conference ID: 8994034

To access the live webcast, visit the “Events & Presentations” page under the “Investors” section of the Company’s website at www.coterra.com. The replay will be archived and available at the same location after the conclusion of the live event.

About Coterra Energy

Coterra is a premier exploration and production company based in Houston, Texas with focused operations in the Permian Basin, Marcellus Shale and Anadarko Basin. We strive to be a leading energy producer, delivering sustainable returns through the efficient and responsible development of our diversified asset base. Learn more about us at www.coterra.com.

Cautionary Statement Regarding Forward-Looking Information

This press release contains certain forward-looking statements within the meaning of federal securities laws. Forward-looking statements are not statements of historical fact and reflect Coterra's current views about future events. Such forward-looking statements include, but are not limited to, statements about the closing of the acquisitions, the anticipated indebtedness to be incurred in connection with the acquisitions, the performance of the assets to be acquired, returns to shareholders, growth rates, enhanced shareholder value, reserves estimates (both of Coterra and for the reserves to be acquired), future financial and operating performance and goals and commitment to sustainability and ESG leadership, strategic pursuits and goals, and other statements that are not historical facts contained in this press release. The words "expect," "project," "estimate," "believe," "anticipate," "intend," "budget," "plan," "predict," "potential," "possible," "may," "should," "could," "would," "will," "strategy," "outlook," "guide" and similar expressions are also intended to identify forward-looking statements. We can provide no assurance that the forward-looking statements contained in this press release will occur as projected and actual results may differ materially from those projected. Forward-looking statements are based on current expectations, estimates and assumptions that involve a number of risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, without limitation: our ability to integrate the assets to be acquired into our operations and to implement our capital plan with respect to such assets; the volatility in commodity prices for crude oil and natural gas; cost increases; the effect of future regulatory or legislative actions; actions by, or disputes among or between, the Organization of Petroleum Exporting Countries and other producer countries; market factors; market prices (including geographic basis differentials) of oil and natural gas; impacts of inflation; labor shortages and economic disruption (including as a result of geopolitical disruptions such as the war in Ukraine or the conflict in the Middle East or further escalation thereof); determination of reserves estimates, adjustments or revisions, including factors impacting such determination such as commodity prices, well performance, operating expenses and completion of Coterra’s annual PUD reserves process (including for the assets to be acquired), as well as the impact on our financial statements resulting therefrom; the presence or recoverability of estimated reserves; the ability to replace reserves; environmental risks; drilling and operating risks; exploration and development risks; competition; the ability of management to execute its plans to meet its goals; and other risks inherent in Coterra's businesses. In addition, the declaration and payment of any future dividends, whether regular base quarterly dividends, variable dividends or special dividends, will depend on Coterra's financial results, cash requirements, future prospects and other factors deemed relevant by Coterra's Board. While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. For additional information about other factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to Coterra's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other filings with the SEC, which are available on Coterra's website at www.coterra.com.

Forward-looking statements are based on the estimates and opinions of management at the time the statements are made. Except to the extent required by applicable law, Coterra does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.

Supplemental Non-GAAP Financial Measures (Unaudited)

We report our financial results in accordance with accounting principles generally accepted in the United States (GAAP). However, we believe certain non-GAAP performance measures may provide financial statement users with additional meaningful comparisons between current results and results of prior periods. In addition, we believe these measures are used by analysts and others in the valuation, rating and investment recommendations of companies within the oil and natural gas exploration and production industry. See the reconciliations below that compare GAAP financial measures to non-GAAP financial measures for the periods indicated.

We have also included herein certain forward-looking non-GAAP financial measures. Due to the forward-looking nature of these non-GAAP financial measures, we cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as changes in assets and liabilities (including future impairments) and cash paid for certain capital expenditures. Accordingly, we are unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Reconciling items in future periods could be significant.

Capital expenditures is defined as cash capital expenditures for drilling, completion and other fixed asset additions less changes in accrued capital costs.

Discretionary Cash Flow is defined as cash flow from operating activities excluding changes in assets and liabilities. Discretionary Cash Flow is widely accepted as a financial indicator of an oil and gas company’s ability to generate available cash to internally fund exploration and development activities, return capital to shareholders through dividends and share repurchases, and service debt and is used by our management for that purpose. Discretionary Cash Flow is presented based on our management’s belief that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of other companies that use the full cost method of accounting for oil and gas produced activities or have different financing and capital structures or tax rates. Discretionary Cash Flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities or net income, as defined by GAAP, or as a measure of liquidity.

Free Cash Flow is defined as Discretionary Cash Flow less cash paid for capital expenditures Free Cash Flow is an indicator of a company’s ability to generate cash flow after spending the money required to maintain or expand its asset base and is used by our management for that purpose. Free Cash Flow is presented based on our management’s belief that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of other companies. Free Cash Flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities or net income, as defined by GAAP, or as a measure of liquidity.

EBITDAX is defined as net income plus interest expense, other expense, income tax expense and benefit, depreciation, depletion, and amortization (including impairments), exploration expense, gain and loss on sale of assets, non-cash gain and loss on derivative instruments, earnings and loss on equity method investments, equity method investment distributions, stock-based compensation expense and merger-related costs. EBITDAX is presented on our management’s belief that this non-GAAP measure is useful information to investors when evaluating our ability to internally fund exploration and development activities and to service or incur debt without regard to financial or capital structure. Our management uses EBITDAX for that purpose. EBITDAX is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities or net income, as defined by GAAP, or as a measure of liquidity.

Net Debt and Net Debt to EBITDAX (or Net Leverage)

Net Debt is calculated by subtracting cash and cash equivalents from total debt. Net Debt is a non-GAAP measures which our management believes are also useful to investors when assessing our leverage since we have the ability to and may decide to use a portion of our cash and cash equivalents to retire debt. Our management uses this measure for that purpose.

Other Defined Terms

Present Value Index (PVI10) is often used by management as a return-on-investment metric and defined as the estimated net present value (using a 10% discount rate) of the future net cash flows from such reserves (for which we utilize certain assumptions regarding future commodity prices and operating costs), adding back our direct net costs incurred in drilling and adding back our completing, constructing facilities, and flowing back such wells, and then dividing that sum by our direct net costs incurred in drilling, completing, constructing facilities, and flowing back such wells.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241113988998/en/

Investor Contact

Daniel Guffey – Vice President of Finance, Investor Relations, and Treasurer

281.589.4875

Hannah Stuckey – Investor Relations Manager

281.589.4983

Source: Coterra Energy Inc.

FAQ

What is the total value of Coterra's (CTRA) Permian Basin acquisitions?

Coterra's Permian Basin acquisitions total $3.95 billion, consisting of $2.95 billion in cash and $1 billion in Coterra common stock.

How many net acres is Coterra (CTRA) acquiring in New Mexico?

Coterra is acquiring approximately 49,000 net highly contiguous acres in Lea County, New Mexico, creating a new 83,000-net-acre focus area.

When will Coterra's (CTRA) Permian Basin acquisitions close?

The acquisitions are expected to close during the first quarter of 2025, with effective dates as of October 1, 2024.

What is Coterra's (CTRA) expected 2025 oil production after the acquisitions?

Coterra's pro forma 2025 oil production is expected to be 150-170 mbod, representing a 49% increase from 2024 guidance.