Cabot Oil & Gas Corp. and Cimarex Energy Co. said Monday they have agreed to an all-stock merger of equals in a deal with an enterprise value of about $17 billion. Under the terms of the deal, Cimarex shareholders will receive 4.0146 shares of Cabot common stock for each share owned. Once the deal closes, Houston-based Cabot’s shareholders will own about 49.5% of the combined company, while Denver-based Cimarex’s shareholders will own the remaining 50.5%. The deal is expected to close in the fourth quarter. The deal “will create a free cash flow focused, diversified energy company with the scale, inventory and financial strength to thrive across commodity price cycles,” Dan O. Dinges, CEO of Cabot, said in a statement. The companies expect the deal to generate cost synergies of $100 million within 18 months to 2 years of closing. The deal will combine Cabot’s roughly 173,000 net acres in the Marcellus Shale basin with Cimarex’s roughly 560,000 net acres in the Permian and Anadarko basins. It is expected to generate free cash flow of about $4.7 billion from 2022 to 2024 based on the assumption of a $55 per barrel West Texas Intermediate price, the U.S. benchmark for crude oil, and $2.75 per MMBtu NYMEX natural gas price. The new business is expected to have an annual base dividend of 50 cents a share, paid quarterly, and will be supplemented with a quarterly variable dividend to achieve a target capital return of at least 50% of quarterly free cash flow. It will also pay a 50 cents special dividend to all shareholders of the combined business after the close. Cabot shares were up 1.6% premarket, while Cimarex shares were up 1.1%.
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