EOG to buy CDEV?
Posted: Wed Nov 18, 2020 4:00 pm
One person's (not mine) comment re the EOG - CDEV rumor:
CDEV has been a nightmare story. They market has generally written them off as a relevant shop: There isn't a compelling reason to expect a strategic exit. Their acreage is generally tier 2 and sub-economic at strip (with ton's of parent-child to boot). Most of the bigs aren't looking for PDP or sub-economic inventory.
CDEV is generally trading around PDP10 / PDP9 at strip if one strips out G&A overhang. If they don't transact, there is the potential for G&A to slowly bleed-away value. This is why their bonds are trading below par. (and why many PDP assets are selling at PDP15).
I actually like this deal from the standpoint of an EOG. They have a premium multiple on their equity, and the arbitrage is immediately apparent. They likely don't need near-term Tier 1 inventory, as their North Del position should still have a couple years. However, EOG is pretty lean on the "Tier 2" front (their Bakken is dry and Eagle Ford darn close).
EOG can step-in, clear out 80%+ of CDEV's G&A, and have a deal which is underwritten by PDP10. Any value from acreage and future development is upside. Reduced financing costs is also an immediately realizable upside.
With bonds trading at an average of 65-70 cents, CDEV debt may present the strongest upside for those wanting to play a potential deal.
CDEV has been a nightmare story. They market has generally written them off as a relevant shop: There isn't a compelling reason to expect a strategic exit. Their acreage is generally tier 2 and sub-economic at strip (with ton's of parent-child to boot). Most of the bigs aren't looking for PDP or sub-economic inventory.
CDEV is generally trading around PDP10 / PDP9 at strip if one strips out G&A overhang. If they don't transact, there is the potential for G&A to slowly bleed-away value. This is why their bonds are trading below par. (and why many PDP assets are selling at PDP15).
I actually like this deal from the standpoint of an EOG. They have a premium multiple on their equity, and the arbitrage is immediately apparent. They likely don't need near-term Tier 1 inventory, as their North Del position should still have a couple years. However, EOG is pretty lean on the "Tier 2" front (their Bakken is dry and Eagle Ford darn close).
EOG can step-in, clear out 80%+ of CDEV's G&A, and have a deal which is underwritten by PDP10. Any value from acreage and future development is upside. Reduced financing costs is also an immediately realizable upside.
With bonds trading at an average of 65-70 cents, CDEV debt may present the strongest upside for those wanting to play a potential deal.