Houston Based Coterra Announces Accretive Permian Deals for Near $4B

In a statement posted on its website on Wednesday, Houston headquartered Coterra Energy Inc. (NYSE: CTRA) announced “accretive Permian Basin acquisitions”.

The company said 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. That consists 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, Coterra highlighted.

Coterra noted in the release that the cash portion of the consideration is expected to be funded through a combination of cash on hand and borrowings. It said the transactions are each subject to satisfaction of customary terms and conditions and revealed that they are expected to close during the first quarter of next year.

Neither acquisition is conditioned on the closing of the other acquisition, Coterra pointed out in the statement.

Coterra outlined in the release that the deals are “highly accretive”, include “deep pro forma inventory, with over 15 years of runway in the Permian Basin”, and add “scale in New Mexico”.

Looking ahead to next year, Coterra revealed in the statement that it estimates 2025 production of between 150,000 and 170,000 barrels of oil per day, which it pointed out is an increase of approximately 49 percent “compared to estimated 2024 mid-point of oil guidance”.

Standalone Coterra assets are expected to generate five to 10 percent growth in 2025, the company highlighted.

Total equivalent production is expected to come in at between 720,000 and 760,000 barrels of oil equivalent per day, Coterra outlined. That’s an increase of approximately 11 percent compared to estimated 2024 mid-point of total equivalent production guidance, the company said.

“We are thrilled to announce the pending acquisition of two high-quality Permian Basin asset packages,” Tom Jorden, Chairman, CEO, and President of Coterra, said in the statement.

“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,” he added.

“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,” he went on to state.

EIR Analysis

In an analysis piece sent to Rigzone, Andrew Dittmar, principal analyst at Enverus Intelligence Research (EIR), said Franklin Mountain Energy and Avant Natural Resources are “two of the top remaining private company acquisition targets left in an increasingly consolidated Permian Basin and potentially one of the last chances in this consolidation cycle for Coterra to materially increase its Delaware footprint outside of public company corporate M&A”.

In the analysis, Dittmar said Coterra “had the luxury of already having a substantial runway of Delaware inventory with more than a decade of total inventory”. He added, however, that “in the scramble for dwindling high-quality resource, it is important for companies to continue to build scale when they can find a deal that fits all acquisition criteria”.

“By combining these two companies into concurrently announced deals, Coterra was able to maintain its inventory duration in the Delaware, keep quality consistent, and improve its free cash flow profile,” Dittmar said.

Dittmar also noted that the assets are a strong strategic fit for Coterra given the company’s legacy acreage position in the New Mexico portion of the Delaware Basin.

“The Permian is currently very competitive for deals with buyers willing to pay up for remaining drilling inventory,” Dittmar highlighted.

“These acquisitions screen broadly in line with the current market price for Permian drilling locations at around $3 million per location using Coterra’s disclosed numbers,” he added.

“As a large-cap company that trades at a premium to smaller rivals, Coterra has the market valuation to keep the deals financially accretive at a combined 3.8x EBITDA and the balance sheet strength to take on the additional $2.5 billion of debt to fund the cash portion of the deals,” he continued.

Dittmar pointed out that the deals add more oil production to Coterra’s overall production base, “helping balance its corporate production between oil and gas”. He noted that the optionality between the two commodities remains a key selling point for Coterra as it is fairly unique among independent E&Ps in being able to shift capital based on relative pricing.

“Its gas exposure stands to benefit the company as natural gas prices are poised to rally in 2025 on the back of ramping U.S. LNG exports and increasing data center demand,” he said.

In the analysis, Dittmar said Franklin Mountain and Avant are capitalizing on strong demand for Permian assets to win an attractive exit.

“For private companies, timing a sale is critical as they look to balance growing their production base by drilling wells against leaving remaining drilling locations for buyer,” he added.

“These two companies had achieved a sweet spot in their portfolios for a mix of production and inventory. Given recent weakness in crude pricing, they may have felt that the timing was right for finding a buyer in case pricing deteriorates further weakening demand for their assets,” he said.

“For Coterra, which is building a portfolio to manage through commodity price cycles, near-term weakness in crude is not as disruptive as it would be for a private seller trying to hit the right exit window,” Dittmar went on to state.

To contact the author, email andreas.exarheas@rigzone.com