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Cimarex to Buy Magnum Hunter in $1.96B Stock Deal

Denver-based Cimarex Energy Co. announced that it will buy Irving, TX-based producer Magnum Hunter Resources in a stock deal valued at about $1.96 billion, including the assumption of $645 million in Magnum Hunter debt and $15 milion from Magnum Hunter's share in the TEL Offshore Trust. The purchase price amounts to about a 15-20% premium compared to where Magnum Hunter's shares had been trading prior to the announcement.

The deal follows a decision last fall by Magnum Hunter CEO Gary Evans to retire and examine strategic alternatives for the company. Evans started the company with $1,000 nearly 20 years ago and built it into a $1.8 billion asset portfolio.

"The combination of these two very successful enterprises will be complemented with a highly skilled employee group, enhanced financial strength, and growth opportunities to further build shareholder value into the future," Evans said on Wednesday. By noon, Magnum Hunter shares were up 10.7% to $14.65. Cimarex shares tumbled 11.4% on the news to $35.62.

Terms of the merger provide that Magnum Hunter shareholders will receive 0.415 shares of Cimarex common stock for each of their shares of Magnum Hunter stock. In addition to the merger consideration and prior to closing, Magnum Hunter plans to distribute a special dividend representing its 29.3% ownership interest in TEL Offshore Trust. The current market value of the trust units is $15 million, which would equate to a dividend value of $0.17 per Magnum Hunter share.

"Based on the respective closing prices of Cimarex and Magnum Hunter on Jan. 25, the proposed terms of the transaction imply a purchase price of $16.67 per Magnum Hunter share or a premium of 26%," Evans added. "With the additional contemplated distribution of TEL Offshore Trust units to our shareholders, the overall consideration implies a price of $16.84 per share."

Magnum Hunter has about 1 Tcf of proved reserves and Cimarex has 449 Bcfe of proved reserves. The companies will book year-end 2004 proved reserves of over 1.3 Tcfe, of which 68% is natural gas. Pro forma combined fourth-quarter 2004 estimated net production is expected to be 480 MMcfe/d (23% hedged) and full-year 2005 production is expected to be 500 MMcfe/d (18% hedged).

The deal leads to a substantial number of statistical improvements for Cimarex, which currently focuses its E&P operations mainly in the Midcontinent and Gulf Coast regions: it triples Cimarex's reserves, extends its reserve life, doubles its production, establishes the Permian Basin as a substantial core area, adds complementary operations in the Midcontinent and Gulf Coast areas, adds high potential opportunities in the Gulf of Mexico and enhances its operational expertise by adding Magnum Hunter's technical teams. The company will retain Magnum Hunter's base of operations in the Dallas/Ft. Worth area.

The transaction is expected to be "meaningfully accretive to per share reserves, production and cash flow," Cimarex said.

"We saw in Magnum Hunter the clear opportunity to expand in our existing core areas and to add new projects, all without jeopardizing our strong financial position," said Cimarex CEO F.H. Merelli. "Their properties provide a substantial footprint in the Permian Basin from which we can grow, measured exposure to high potential projects in the Gulf of Mexico, and a nice overlap in some of our other areas of operations.

"The merger structure allows Cimarex to greatly expand its balanced-risk drilling program underpinned by a strong balance sheet. This is all about continuing to build a better company."

Based on the 87.1 million Magnum Hunter common shares currently outstanding, Cimarex expects to issue 36.1 million common shares to Magnum Hunter's common stockholders. The combined company is expected to have 78 million basic shares outstanding and Cimarex shareholders are expected to own 53.6% with Magnum Hunter shareholders owning 46.4%.

The merger is subject to favorable votes by the shareholders of Cimarex and Magnum Hunter, customary regulatory approvals and certain closing conditions. Upon completion, one existing board member from Magnum Hunter will join the Cimarex board. The merger is expected to be completed during the second quarter.

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