US shale players Cabot Oil & Gas and Cimarex Energy have announced a merger of equals valued at roughly $7.4bn. The all-stock transaction will create a company with an enterprise value of around $17bn, to be named at a later date.
The transaction has been described as a surprising one, given the lack of overlap between the two companies’ operations. Cabot is a Marcellus shale-focused gas driller, while Cimarex produces predominantly tight oil, with its assets mainly located in the Permian Basin and the US Mid-Continent.
The deal will give Cabot shareholders about 49.5% of the combined entity, with Cimarex shareholders owning the remaining 50.5% stake, the companies said in a May 24 statement. The combination represents a less than 1% premium to Cimarex’s May 21 close, in line with a number of other recent almost zero-premium mergers.
KeyBank analysts expressed their concern over the fact that the deal will turn Cimarex into a gas producer, thus taking away any benefits to be gained from rising oil prices. They also highlighted the low premium.
However, Cabot’s CEO, Dan Dinges, told Reuters that the combined entity could hold appeal for shareholders in a way that neither company has been able to create individually.
The news comes amid a number of other major mergers and acquisitions (M&As) that are currently being finalised in the US oil and gas industry. However, the majority of producers have tended to favour deals that expand their core footprints and allow them to benefit from economies of scale across one main region.

 

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