Coterra Energy Inc. (NYSE: CTRA), a leading independent oil and gas company, has announced its strategic expansion in the Permian Basin through two definitive agreements to acquire key assets from Franklin Mountain Energy and Avant Natural Resources. The combined transaction, valued at $3.95 billion, includes $2.95 billion in cash and $1.0 billion in Coterra common stock. These acquisitions, expected to close in the first quarter of 2025, will significantly enhance Coterra’s footprint in the Delaware Basin, adding highly contiguous, oil-weighted acreage in New Mexico. This move aligns with Coterra’s focus on disciplined growth, robust cash flow generation, and long-term shareholder value while reinforcing its position as a premier Permian Basin operator.

Here’s a summary of Coterra Energy Inc.’s acquisition of assets from Franklin Mountain Energy and Avant Natural Resources, along with key highlights and details of the transaction:

Transaction Overview

Total Purchase Price: $3.95 billion
- Cash Component: $2.95 billion (to be funded through cash on hand and borrowings)
- Stock Component: $1.0 billion in Coterra common stock (~40.9 million shares)
Closing Date: Expected in Q1 2025, with an effective date of October 1, 2024
Assets Location: Lea County, New Mexico, within the northern Delaware Basin
Independent Transactions: Each acquisition is not contingent on the other closing.

Strategic Rationale

Core Expansion: Adds ~49,000 net highly contiguous acres in New Mexico, increasing Coterra’s Permian footprint by 25%.
Deep Inventory: Provides 400-550 net drilling locations, primarily targeting Bone Spring, Harkey, Avalon, and emerging Lower Wolfcamp/Penn Shale formations.
Operational Synergies: Acquiring 125 miles of pipeline and infrastructure to enhance netbacks and reduce costs.

Financial Highlights

Accretion:
- 15% accretive to estimated 2025-2027 per share Discretionary Cash Flow, Free Cash Flow, and Net Asset Value.
Valuation:
- Priced at 3.8x estimated 4Q24 annualized EBITDAX.
- Estimated 13% Free Cash Flow yield in 2025 (at $70/bbl WTI and $3.00/MMBtu Henry Hub).
Balance Sheet:
- Net Leverage Ratio expected to be 0.6x by year-end 2025, remaining below 1.0x even in a low commodity price environment ($55/bbl WTI).

Operational Outlook (2025)

Capital Expenditures: Estimated at $2.1-$2.4 billion, with ~75% allocated to the Permian Basin.
Production Forecast:
- Oil Production: 150-170 mbopd (up ~49% from 2024).
- Total Equivalent Production: 720-760 mboed (up ~11% from 2024).
- Acquired Assets: Expected oil production of 40-50 mbopd; total production of 60-70 mboed.
Revenue Mix: Anticipated oil revenue share of 55-60% based on 2025 production.

Investment Strategy

Reinvestment Rate: Approximately 50% of Discretionary Cash Flow.
Break-even Pricing:
- Free Cash Flow after base dividend at $50/bbl WTI and $2.50/MMBtu Henry Hub.
Shareholder Returns: Commitment to a minimum 50%+ return of annual Free Cash Flow via dividends and buybacks.

Asset & Operational Synergies

Enhanced Focus Area: Adds significant oil-weighted assets, expanding Coterra’s core in the Delaware Basin.
Contiguous Acreage: Facilitates efficient drilling, maximizes wells per pad, and optimizes infrastructure usage.
Production Efficiency: Average lateral length of 9,500 feet, targeting multiple horizons for enhanced well productivity.

This acquisition positions Coterra to significantly expand its oil-weighted portfolio in New Mexico, strengthen its core Permian position, and enhance free cash flow generation while maintaining a disciplined financial strategy.