Please ensure Javascript is enabled for purposes of website accessibility

Cabot Oil & Gas and Cimarex Energy to Merge in $17 Billion Deal

By Matthew DiLallo - Updated May 24, 2021 at 9:17AM

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 transaction will create a large-scale oil and gas producer.

Cabot Oil & Gas (CTRA 2.08%) has agreed to unite with Cimarex Energy (XEC) in an all-stock merger of equals. The transaction values the combined oil and gas companies at $17 billion. 

The transformational merger will create a diversified energy company focused on generating free cash flow. It will combine Cabot's top-tier natural gas assets in the Marcellus Shale with Cimarex Energy's oil-rich positions in the Permian and Anadarko basins.

The silhouette of two people shaking hands near an oil pump.

Image source: Getty Images.

The companies estimate that the combination will save $100 million of annual general and administrative costs within two years of closing the transaction. That will further reduce the combined company's cost structure, positioning it to generate $4.7 billion of free cash flow from 2022 to 2024, assuming oil averages $55 a barrel and a natural gas price of $2.75 per MMBtu.

That enhanced free cash flow profile will enable the new company to return more cash to shareholders. The combined entity plans to pay a sustainable base dividend that should grow over time, a variable dividend, and a special dividend. It's targeting an initial annual base dividend of $0.50 per share that it will pay quarterly. It aims to supplement that payout with a quarterly variable dividend targeting to return at least 50% of its quarterly cash flow, with the first payment expected in the first quarter of 2022. Finally, the company intends on paying a $0.50 per share special dividend upon closing the transaction, which it hopes will occur in the fourth quarter of this year. 

The companies believe their combination will create a top-tier oil and gas company with a more resilient platform and greater financial strength. That should allow them to deliver sustainable returns to shareholders throughout the commodity price cycle.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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

Coterra Energy Inc. Stock Quote
Coterra Energy Inc.
$28.94 (2.08%) $0.59
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 08/16/2022.

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.