XEC merger into COG Update - Sept 30

[dan_s]

Note from Neal Dingmann at Truist Financial

Cimarex Energy Co. (XEC): Now the Fun Begins

Shareholders of Cimarex (>90% of voted shares/~79% of outstanding shares)
and Cabot (COG, Not Rated) (>99% of voted shares/~89% of outstanding shares)
overwhelmingly approved the pending transaction. The deal is expected by the
company to close on October 1 at which time we anticipate numerous previously laid
out accelerated capital returns (increasing annual dividend to $0.50/sh, introducing
quarterly variable dividend, $0.50/sh special dividend). Beyond the shareholder
returns, we look for details over disciplined capital investment, strong FCF, and
potential additional shareholder returns such as stock buybacks. We continue to
believe the pro-forma company will be one of the premiere shareholder returning
companies given its limited spend, high commodity prices, limited hedges, and
strong operations.

Stable Continued Efficient Operations to Drive Upside
The combined company will have 173k net acres in the Marcellus, 234k net acres in the
Permian, and 326k net acres in the Mid-Con along with 600+ mboepd of production. We
anticipate total D&C activity not materially different than the current 5+ rigs/1+ frac spreads
run by Cimarex, which we expect will lead to solid production growth and even better
FCF. We assume the pro forma company will operate much like XEC historically, with <1x
leverage.

Pricing Upside
Strong continued natural gas/NGL prices (HHUB gas and NGL prices are currently 60%+
above their five-year averages) along with relatively equally as strong oil prices and minimal
hedges going forward make for an exciting combination. As we have previously stated, for
the remainder of this year going forward cash flow could surprise to the upside. Further, we
believe FCF could surprise to the upside as little capital is required to maintain production
in areas like the Marcellus.

Valuation and Risks
Our $100 price target is derived from two equally weighted methodologies, with the first being our ’23 EV/EBITDAX
multiple of 4.0x applied to our 2023E EBITDAX estimate of $2,213MM and the second being a FCF/EV Yield assumption of 14.0%.
Risks to Our Rating and Price Target:
• A decline in oil and/or natural gas prices may negatively affect the business, financial condition, or results of
operations. Any significant decline in any of the three commodity streams could substantially impact our estimates.
• Constrained transportation capacity out of one of the company’s areas of focus could lead to shut in production and/
or activity reduction.
• Reserve and production estimates depend on many assumptions such as commodity prices, resource potential,
and drilling success rates that may turn out to be inaccurate. Any change in these figures could materially alter our
estimates. This could be a factor of both well performance and company drilling/completion techniques and could
lead to underperformance of company type curves and cost estimates.

[dan_s]

My current valuations are $29.00 for COG and $116.00 for XEC.

XEC shareholders will get 4.0146 shares of COG for each share of XEC that they hold. The NewCo is going to be renamed and it will be in our Sweet 16 Growth Portfolio.
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"We thank Cimarex shareholders for their support of our value creating transaction," said Thomas E. Jorden, Chairman, President and CEO of Cimarex. "Our combined business will have top-tier assets that will generate substantial cash flow to drive peer-leading returns through commodity price cycles. We look forward to completing this transaction and delivering these compelling benefits to our shareholders."

Cabot and Cimarex both anticipate filing the final certified vote results for their respective special meetings on a Form 8-K with the U.S. Securities and Exchange Commission. The transaction is anticipated to close on October 1, 2021. Following the closing of the transaction, the combined business intends to change its name and ticker symbol.

As previously announced, Cimarex and Cabot entered into a definitive agreement on May 23, 2021, whereby the companies will combine in an all-stock transaction. Under the terms of the definitive agreement, each eligible share of Cimarex common stock issued and outstanding immediately prior to the effective time of the transaction will be exchanged for 4.0146 shares of Cabot common stock.
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My 2022 forecast model for NewCo (available on the EPG website under the Sweet 16 Tab / Cimarex logo) shows the following:
> 702,500 Boe per day of production: 74.4% natural gas, 12.2% NGLs and 13.4% crude oil
> "Realized commodity prices" used in the forecast: $3.45/MMBtu for natural gas, $25.00/bbl for NGLs and $64.00/bbl for crude oil. "Realized Prices" are my estimate of the actual cash the Company will receive net of regional differentials and cash settlements on their hedges. Today the realized commodity price estimates above look too conservative, especially for NGLs.
> Forecast Financial results for 2022:
>> Revenues of $7.0 Billion
>> Net Income after taxes of $3.1 Billion ($3.78/share)
>> Operating Cash Flow of $4.7 Billion (5.80/share)

IMO NewCo (which post-merger will be COG prior to the name change) fair value estimate should be in the range of 5X to 6X operating cash flow per share ($29 to $34 per share).

[Fraser921]

Dan, Nice job with your coverage. Many hated this deal.You were 5 months ahead of wall street gang!

[dan_s]

That's why you pay me the Big Bucks for an EPG membership.

FYI we have added 11 new EPG members this month. That is the largest one month increase in close to 8 years.

Thanks to all of you that have help spread the word.