American Oil and Gas Reporter - June 2021 - 30

· Enhances investigative and remediation
capabilities.
Garret Grajek, chief executive officer
of software provider YouAttest, describes
the information sharing provisions of the
EO as a welcome development that may
help improve coordination and communication
between government and the priCommodity
Prices
Operators Show Resolve
To Keep Focus On Returns
By Gregory D.L. Morris
The " merger of equals " between Cabot
Oil & Gas and Cimarex Energy announced
on May 24 is the latest development in
the industry's ongoing realignment shift
as U.S. operators position for the future
by making strategic moves to fortify their
corporate strengths and reinforce any perceived
weaknesses.
The all-stock transaction reflects an
enterprise value of $17 billion for the
combined companies, and integrates
Cabot's 173,000 net acres in the gas-rich
Marcellus Shale with Cimarex's 560,000
net acres in the liquids-rich Permian and
Anadarko basins to create an inventory
stocked with decades of high-return development
locations in premier oil and
natural gas basins.
" The combination of Cabot and
Cimarex will create a free cash flowfocused,
diversified energy company
with the scale, inventory and financial
strength to thrive across commodity
price cycles, " says Dan Dinges, chairman,
president and chief executive officer
of Cabot. " With its premier assets,
increased resource diversity and a strong
financial foundation, the company will
be well positioned to deliver long-term
value creation for its shareholders and
other stakeholders. "
Tom Jorden, chairman, president and
CEO of Cimarex, adds, " We view commodity,
geography and asset diversification
as strategic advantages that will drive
more resilient free cash flow and longterm
value creation. We are aligned on
30 THE AMERICAN OIL & GAS REPORTER
our commitment to environment, social
and governance (principles) and sustainability,
and look forward to bringing our
talented teams together to unlock the
tremendous potential of this compelling
combination. "
The oil and gas markets have rebounded
in remarkable fashion over the
past 12 months, but recent merger and
acquisition activity among flagship independent
oil and gas companies reinforces
the industry's commitment to
fiscal discipline, responsiveness to cyclic
shifts in commodity prices, and investor
demands for sustainable operations. All
three of those drivers are evident in the
capital markets today, points out Kraig
Grahmann, partner with the energy law
firm Haynes & Boone.
" The focus for capital providers is on
proven plays and players with a strong
emphasis on reliable and consistent returns.
The lesson for borrowers and management
teams seeking backing is that lenders
and investors are not going to pay you to
experiment, " he says. " They want proven
and repeatable results. "
The Biden administration's decision
to halt the issuance of new leases on
federal lands also is a complicating
factor for many operators, Grahmann
notes. " We are hearing from producers
who are active on federal land that they
have lined up 10 years' worth of permits
so that they do not have to get further
approval. But in general, capital providers
are shying away from projects on federal
lands, at least until there is clarity on
how leasing will be handled, " he says.
Focused On Returns
Regardless of where a company operates,
however, the U.S. market is " all
about returns, " observes Wesley Adams,
director of acquisitions and divestiture
firm Energy Advisors Group. Returns
have always been important, of course,
but the overwhelming emphasis on returns
is quite a turnabout from a few years
ago when investors were rewarding
growth and differentiation through operational
performance.
" As a result, stock valuations do not
make a lot of sense right now, " Adams
goes on. " When large public companies
have reported production growth, their
stock has gone down. Investors want to
see discipline above all else. "
The fact that the situation in the oil
and gas financial markets is out of the
ordinary is not altogether surprising considering
the extraordinary volatility over
the past few years. Capital continues to
be constrained, which is one of the factors
motivating corporate mergers, he suggests,
adding that it is also not surprising that
the Permian Basin has led the recovery
in activity. " The Permian is generally in
a better situation that other basins, " Adams
relates. " There is some capital infusion,
and even some research and development
in effect. "
Also outside the historic norm is the
customary trickle down of assets following
a downturn and a period of corporate rationalizations
and M&A deals. " What is
supposed to happen after a downturn is
that assets tend to get recycled to the
market for smaller players to snap up
vate sector. He says a cybersecurity safety
review board, modeled on the National
Transportation Safety Board, is an intelligent
move in that direction.
" What is important to note too is
that none of the actions are forcing
changes in private entities-they instead
are focused on strengthening the practices
and responses of our federal government
systems, while providing a response
plan to major attacks like the Colonial
Pipeline hack, " Grajek adds. " Nor is
there an implementation or call for a
government owned or supervised (industrial
control system) network for
America's critical infrastructure. " ❒
American Oil and Gas Reporter - June 2021

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