Continuing a two-year consolidation of upstream assets, Houston-based Coterra Energy announced Wednesday its acquisition of western Permian Basin assets from Franklin Mountain Energy and Avant Natural Resources for $3.95 billion in stock and cash.
The assets increase Coterra’s net presence in the New Mexico end of the Permian by 75 percent and its presence in the overall Permian by 25 percent. The deal also includes 125 miles of pipeline and other infrastructure and gives Coterra a nearly contiguous 83,000-acre focus in the core producing regions of the Delaware Basin.
Said Tom Jorden, president and CEO of Coterra: “We have been drilling horizontal wells in Lea County, New Mexico since 2010 and are extremely excited with the recent results and future opportunity across the area. The newly scaled platform provides a long runway for capital efficient development and substantial free cash flow generation. Importantly, we are maintaining an industry-leading balance sheet.”
Aggregated terms of the two separate agreements include $2.95 billion in cash and $1.0 billion in shares of Coterra issued to certain sellers.
Gibson Dunn & Crutcher advised Coterra as outside legal counsel. Kirkland & Ellis counseled both Franklin Mountain and Avant with separate transactional teams.
Franklin Mountain Energy, one of the few closely held energy E&Ps operating in the Permian, was being openly shopped to potential buyers since at least August by its founder, Paul Foster. Franklin Mountain is based in Denver and was founded 2018.
Privately held Avant Natural Resources, also headquartered in Denver, was founded in 2019 by Jacob Nagy, a former energy investment banker at Petrie Partners, and Skyler Gary, a former landman at Hat Creek Energy.
The Gibson Dunn corporate team advising Coterra includes Houston partners Rahul Vashi, Tull Florey and Hillary Holmes and associates Chris Atmar, Samantha Astrich, Graham Valenta, Jonathan Sapp, Kene Obi, Mariana Lozano and Caroline Bakewell. Advising on tax matters are partner Michael Cannon and associate Josiah Bethards and on benefits are partner Krista Hanvey and associate John Curran.
The Kirkland team advising Franklin Mountain Energy included real asset lawyers Chris Heasley and Will Eiland, and corporate lawyer John Kaercher; and also real asset lawyers Luke Strother, Matt Gibson, Mitch Holliman, Trent Tucker and Jake Johnson; Hayley Hollander on transactional liability insurance; capital markets lawyer Michael Rigdon; debt finance lawyer Jordan Roberts; tax lawyer David Wheat; and antitrust & competition lawyer Chuck Boyars.
For Avant, the Kirkland team included corporate lawyer John Kaercher; real asset lawyers Chris Heasley and Albert Jou; corporate lawyer Paul Milani; tax lawyers David Wheat and Rebecca Fine; environmental transactions lawyers Jonathan Kidwell and Courtney Tibbetts; antitrust & competition lawyers Chuck Boyars, Sarah Lonvick and Miguel Suarez Medina; transactional liability insurance lawyer Hayley Hollander; and employment & labor lawyer Christie Alcala.
Jefferies served as financial advisor to Franklin Mountain Energy, while Avant was advised on the financial side by TPH&Co, the energy business of Perella Weinberg Partners and Petrie Partners.
JPMorgan Chase Bank, PNC Capital Markets and TD Securities are providing financing for the transaction, while Veriten served as independent advisor.
Adam Vela, general counsel for Coterra, is a graduate of Sturm College of Law at the University of Denver and a former assistant GC at Cimarex Energy. Franklin Mountain GC Blake Pickett joined the company in 2019 from KKR-backed Fleur de Lis Energy in Dallas.
Both agreements are expected to close during the first quarter of 2025, effective Oct. 1, 2024. Neither closing is dependent on a closing of the other.
Assets to be acquired include 400-550 Permian locations, primarily targeting Bone Spring, Harkey, Avalon and the emerging oily Lower Wolfcamp/Penn Shale.
The acquisition is valued at 3.8 times the estimated fourth quarter 2024 annualized EBITDAX and approximately 13% estimated 2025 free cash flow yield at $70 per barrel at WTI pricing, which this week has dipped below that $70 per barrel threshold. Still, Coterra said it expects to maintain a top-tier balance sheet and liquidity, with estimated year-end 2025 net leverage ratio of 0.6x, with continued break-even corporate pricing in a $55 per barrel oil and $2.50/MMBtu natural gas price environment.