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

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

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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.

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Stocks Mentioned

Coterra Energy Inc. Stock Quote
Coterra Energy Inc.
CTRA
$28.94 (2.08%) $0.59
Cimarex Energy Co. Stock Quote
Cimarex Energy Co.
XEC

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