On November 13, 2024, Coterra Energy Inc. announced definitive agreements to acquire Franklin Mountain Energy and Avant Natural Resources for a combined total of $3.95 billion. This strategic move aims to enhance Coterra’s presence in the Permian Basin, particularly in New Mexico’s Delaware Basin.
Deal Structure and Financial Details
The acquisition comprises $2.95 billion in cash and $1 billion in Coterra common stock, issued to one of the sellers. The cash portion is expected to be funded through a combination of cash on hand and new borrowings. The transactions are anticipated to close in the first quarter of 2025.
Strategic Rationale and Asset Integration
This acquisition significantly expands Coterra’s footprint in the northern Delaware Basin, adding approximately 49,000 net contiguous acres in Lea County, New Mexico. The assets include 400 to 550 net Permian locations, primarily targeting formations such as Bone Spring, Harkey, Avalon, and the emerging oily Lower Wolfcamp/Penn Shale. This expansion is expected to increase Coterra’s New Mexico and Permian net locations by about 75% and 25%, respectively.
Financial Implications and Market Position
Coterra anticipates that the acquired assets will add significant oil volumes in 2025, with total equivalent production expected to increase by 60,000 to 70,000 barrels of oil equivalent per day. The company estimates capital expenditures for 2025 to be between $2.1 billion and $2.4 billion, with approximately 75% allocated to the Permian Basin. This strategic acquisition is projected to be over 15% accretive to estimated 2025-2027 per share discretionary cash flow and free cash flow, enhancing shareholder value.
Industry Context and Competitive Landscape
The Permian Basin remains a focal point for oil and gas producers due to its prolific shale oil output and substantial undeveloped reserves. Coterra’s acquisition aligns with industry trends of consolidating assets to enhance operational efficiency and capitalize on high-quality drilling locations. This move positions Coterra competitively among peers who are also expanding their Permian Basin portfolios.
Advisors and Legal Counsel
Gibson, Dunn & Crutcher LLP served as legal advisor to Coterra Energy. Jefferies LLC acted as financial advisor to Franklin Mountain Energy, with Kirkland & Ellis LLP providing legal counsel. TPH&Co, the energy business of Perella Weinberg Partners, and Petrie Partners, LLC served as financial advisors to Avant Natural Resources, with Kirkland & Ellis LLP also providing legal counsel.
Key Takeaways
- Expansion Strategy: The acquisition significantly enhances Coterra’s presence in the Permian Basin, adding substantial acreage and drilling locations.
- Financial Growth: The deal is expected to be accretive to cash flows and production volumes, supporting Coterra’s financial objectives.
- Industry Positioning: This move aligns with broader industry trends of consolidation and strategic expansion within prolific oil-producing regions.
