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
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