A pair of deals this week continued the hot streak of merger and acquisition activity in the US shale sector, write Kathrine Schmidt and Steve Marshall.

In the larger of the two deals, shale player Cimarex Energy agreed to acquire Permian player Resolute Energy for $1.6 billion.

The cash-and-stock acquisition values Resolute at $35 per share, about a 15% premium, and has won approval from both companies’ boards, Cimarex said. The total purchase price also includes $710 million in long-term debt.

“This high-quality, bolt-on asset is tailor-made for Cimarex,” chief executive Thomas Jorden said. “It is a perfect fit with our existing Reeves County position and will allow us to leverage our knowledge and deliver superior results over a broader asset base for the benefit of both Cimarex and Resolute shareholders.” The assets of Resolute are expected to start generating free cash flow in 2019, while the assets of the combined company are planned to do the same by 2020.

Tudor Pickering Holt said the move came as a surprise, but noted that the Resolute acreage lies “directly adjacent” to the Cimarex position.

“Strategically, this is a bit surprising to us as Cimarex has historically focused on organic leasing to build their acreage footprint as management’s compensation is burdened on a full-cycle basis by land cost (making deals historically tough),” analysts said.

If fully exercised, the deal’s cash value would represent a drawdown of about $810 million, but “would still leave Cimarex’s balance sheet in a healthy position heading into 2019,” Tudor Pickering Holt concluded.

QEP Resources has agreed a $735 million deal to sell its natural gas and oil assets in northwest Louisiana to Aethon Energy.

The Denver-based independent is disposing of its producing properties, undeveloped acreage and associated gas gathering and treating systems in the Haynesville and Cotton Valley plays under the transaction, which is due to close in January 2019.

The buyer has also agreed to assume all firm gas transport agreements related to the assets.QEP chief executive Chuck Stanley said the disposal was “an important next step in our process of becoming a Permian pure-play company”.

Tudor Pickering Holt said the deal would likely mean positive implications for the stock given the deal completes the company’s goals of divesting both assets in the Williston basin and now the Haynesville area — both steps on the company’s way to focusing purely on the Permian.

Earlier in November, QEP revealed a $1.65 billion deal with Vantage Energy Acquisition Corporation for its assets in North Dakota and Montana.

“We think the market will be more than pleased to see a deal announced, especially given gas market fundamentals, and positively surprised by the timing,” analysts said.

Weekly

Mergers and acquisitions keep up the pace as Cimarex, Resolute, QEP and Aethon all join in