Please ensure Javascript is enabled for purposes of website accessibility

Why Resolute Energy Corp. Stock Is Rocketing Today

By Matthew DiLallo - Nov 19, 2018 at 9:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Permian Basin driller finally found a buyer.

What happened

Shares of Resolute Energy Corp. (NYSE: REN) surged more than 11% by 10:00 a.m. EST on Monday after the Permian Basin-focused driller agreed to sell itself to Cimarex Energy (XEC) for $1.6 billion. The deal follows mounting pressure from activist investors to find a buyer.

So what

Cimarex Energy has agreed to acquire fellow Permian Basin oil and gas producer Resolute Energy in a cash-and-stock deal valuing the company at $1.6 billion, which includes the assumption of $710 million in debt. Cimarex is paying $35 per share for Resolute, which is a 14.8% premium to its closing price last Friday.

A barrel of oil coming through a dollar bill.

Image source: Getty Images.

For Cimarex, the deal makes strategic sense because the bulk of Resolute's land is adjacent to Cimarex Energy's position in the Permian. That will allow the company to leverage its knowledge of the area to deliver stronger drilling results. The company believes that the combination will be accretive to both earnings and cash flow per share next year. Further, Cimarex estimates that it will generate free cash flow beginning in 2020, which could enable the company to return more money to shareholders above its current dividend.

For Resolute, the deal marks the end of its battle with activist investors. In May, the company hired financial advisors to explore strategic alternatives, including a possible sale, following pressure from activist investors. The pressure has intensified in recent months as additional activist funds bought shares of Resolute to push the company toward a sale. While those investors got their wish, others who bought in on the hopes of profiting alongside these activists likely didn't make much money, since shares of Resolute have lost value over the last six months due to oil price volatility.

Now what

Cimarex Energy's acquisition of Resolute Energy looks like a smart move. The company is using its cash-rich balance sheet to buy a company with acreage right near its land, which should enable it to deliver stronger drilling returns in the region. Meanwhile, the deal sets it up to start returning more cash to investors by 2020. Those factors make an already-compelling oil stock an even more intriguing idea for long-term investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cimarex Energy Co. Stock Quote
Cimarex Energy Co.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.