Coterra Energy has announced a significant development on Wednesday, revealing its agreement to acquire specific assets from Franklin Mountain Energy and Avant Natural Resources within the highly lucrative Permian Basin. This transaction, valued at an impressive $3.95 billion, is poised to enhance Coterra's operational footprint in New Mexico. The arrangement encompasses a payment structure consisting of $2.95 billion in cash in addition to $1 billion worth of common stock allocated to one of the sellers, although the company has not disclosed which seller this pertains to.
The finalized deals are anticipated to close by the first quarter of 2025, with the acquisitions being independent of one another. Both Franklin Mountain and Avant Natural Resources have yet to provide comments concerning their respective aspects of the transaction. Following this strategic acquisition, Coterra anticipates a boost of approximately 75% in its net locations in New Mexico and a 25% expansion of its net locations within the Permian Basin.
The market reacted positively, with Coterra's shares rising by 2% in afternoon trading. Tom Jorden, the Chief Executive of Coterra Energy, expressed enthusiasm regarding the company’s long-standing drilling operations in Lea County, New Mexico, stating, "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." Jorden characterized this acquisition as "highly accretive," stating that the integration of these assets will yield substantial oil volumes by 2025, thereby providing substantial inventory upside in oil-weighted formations.
The newly acquired assets encompass between 400 to 550 net locations in the Permian field. Moreover, Coterra Energy projects that these acquisitions will contribute over 15% to its estimated discretionary cash flow and free cash flow per share from 2025 to 2027, also enhancing the net asset value per share.
The company has forecasted an expectation of oil production reaching between 150,000 and 170,000 barrels per day in 2025. This projection indicates a notable increase of approximately 49% compared to the guidance midpoint for 2024..