Cimarex Merger with REN Update - Nov 20
Posted: Tue Nov 20, 2018 11:21 am
I spent a couple hours this morning looking at Resolute Energy (REN) and how the merger will impact Cimarex.
1. It should be accretive to earnings and cash flow from operations in 2019.
2. My SWAG is that it will increase Cimarex's 2019 production by approximately 36,500 Boepd to 292,000 Boepd.
REN's Q3 production was 34,752 Boepd (60,012 Mcfpd, 15,739 BOPD, 9011 bbls of NGLs per day)
3. After the expense of closing the transaction, Cimarex should be able to reduce REN's G&A by at least 50% and lower the interest expense on their debt.
4. Post-Merger, Cimarex's production mix in 2019 should be approximately 39% natural gas, 34% crude oil and 27% NGLs.
5. Post-Merger, Cimarex should generate over $2 Billion of cash flow from operations in 2019, which compares to their D&C budget of $1.7 Billion in 2018. In other words, soon after the merger, Cimarex should be generating a lot of FREE CASH FLOW FROM OPERATIONS.
REN is a pure play on the Delaware Basin and their acreage appears to be in the Tier One area; an area where Cimarex already has extensive operations. Cimarex has a first class technical staff and I'm sure they did a good job looking at the resource potential of the acreage.
I have posted my updated forecast model for Cimarex to the EPG website.
> Note that there are two columns for 2019; one without the merger and one assuming the merger closes on January 1st. < It probably won't close on Jan 1, but with a merger it really does not matter since the Buyer gets all of the benefit of pre-merger production anyway.
> Note that I have added a significant amount of "padding" to Other Expenses to cover the transaction closing costs.
> Note the commodity prices used in the 2019 forecast. There is considerable upside for XEC if natural gas prices firm up to $3.00.
> The share count used in the post-merger is a bit of a SWAG because the current REN shareholders have an option to take all cash if they wish. IMO they would be wise to take all stock.
1. It should be accretive to earnings and cash flow from operations in 2019.
2. My SWAG is that it will increase Cimarex's 2019 production by approximately 36,500 Boepd to 292,000 Boepd.
REN's Q3 production was 34,752 Boepd (60,012 Mcfpd, 15,739 BOPD, 9011 bbls of NGLs per day)
3. After the expense of closing the transaction, Cimarex should be able to reduce REN's G&A by at least 50% and lower the interest expense on their debt.
4. Post-Merger, Cimarex's production mix in 2019 should be approximately 39% natural gas, 34% crude oil and 27% NGLs.
5. Post-Merger, Cimarex should generate over $2 Billion of cash flow from operations in 2019, which compares to their D&C budget of $1.7 Billion in 2018. In other words, soon after the merger, Cimarex should be generating a lot of FREE CASH FLOW FROM OPERATIONS.
REN is a pure play on the Delaware Basin and their acreage appears to be in the Tier One area; an area where Cimarex already has extensive operations. Cimarex has a first class technical staff and I'm sure they did a good job looking at the resource potential of the acreage.
I have posted my updated forecast model for Cimarex to the EPG website.
> Note that there are two columns for 2019; one without the merger and one assuming the merger closes on January 1st. < It probably won't close on Jan 1, but with a merger it really does not matter since the Buyer gets all of the benefit of pre-merger production anyway.
> Note that I have added a significant amount of "padding" to Other Expenses to cover the transaction closing costs.
> Note the commodity prices used in the 2019 forecast. There is considerable upside for XEC if natural gas prices firm up to $3.00.
> The share count used in the post-merger is a bit of a SWAG because the current REN shareholders have an option to take all cash if they wish. IMO they would be wise to take all stock.