Cimarex Energy Co. (NYSE: XEC) announced Monday morning that it has agreed to pay approximately $1.6 billion for Permian Basin pure-play producer Resolute Energy Corp. (NYSE: REN). That works out to $35 in cash and stock for all outstanding shares of Resolute stock. The purchase price includes about $710 million in long-term debt.
Resolute holds 21,000 net acres in the Delaware Basin of the Permian and production in the third quarter totaled 253,000 barrels per day of oil equivalent of which nearly 80,000 were oil.
Cimarex CEO Thomas E. Jorden said:
This high-quality, bolt-on asset is tailor-made for Cimarex. It is a perfect fit with our existing Reeves County position and will allow us to leverage our knowledge and deliver superior results over a broader asset base for the benefit of both Cimarex and Resolute shareholders. The Resolute assets are expected to generate free cash flow in 2019, basically funding any additional development capital from the start.
One of Resolute’s most attractive features has been its ability to generate cash flow from production. In the second quarter of 2016, it was holding more than 27,000 acres in the Delaware Basin by production, an unusual accomplishment in the low-price environment of the day.
Perhaps the biggest surprise about Monday’s announcement is that it took so long to happen. Resolute has been a high-quality producer for more than two years and Cimarex was the first to notice? Today’s announcement comes just a couple of weeks following larger acquisitions by Chesapeake and Encana.
The second surprise about the announced purchase is the relatively low premium of just under 15%. For each share of stock they hold, Resolute shareholders will receive either $35 in cash or $14 in cash plus 0.2366 shares of Cimarex stock or 0.3943 shares of Cimarex stock. The amount of stock and cash is subject to proration for a total stock and cash mix of 60% and 40%, respectively.
Cimarex management and its board will remain unchanged and the company expects no effect on its investment-grade credit rating.
Resolute stock traded up about 15.5% shortly after the noon hour Monday at $35.22 in a 52-week range of $24.60 to $39.28. The consensus price target on the stock is $43.89.
Cimarex shares traded down about 0.6% at $88.22 in a 52-week range of $77.63 to $130.16.