(Reuters) - Oil and gas producer Cimarex Energy Co (XEC.N) on Monday agreed to buy smaller rival Resolute Energy Corp (REN.N) for $1.6 billion including debt, adding more assets in the shale-rich Permian Basin for a premium of roughly 15 percent.
However, Resolute’s largest shareholder - Kimmeridge Energy Management Co - said it was dissatisfied with the sale price, highlighting the difficulties U.S. energy mergers are facing due to crude price volatility.
Several deals involving the Permian, the heart of the U.S. shale boom, have been announced this year as producers seek combinations to boost scale, allowing them to take advantage of better drilling technology and negotiate better terms with services firms.
Analysts at investment bank Tudor, Pickering and Holt said Resolute’s acreage in the Delaware part of the Permian sits directly adjacent to Cimarex’s, meaning these benefits should be easier to accrue.
The slump in crude prices in recent weeks - WTI has dropped around 25 percent since the start of October - has made dealmaking more tricky as this volatility affected their stock prices.
Denbury Resources’ (DNR.N) shares fell 25 percent in the week after announcing on Oct. 28 it would buy Penn Virginia (PVAC.O) in a $1.7 billion cash-and-stock transaction. The seller’s third-largest shareholder said last week it would vote against the deal.
Having called for more than a year for options to boost shareholder value, including a possible sale, Kimmeridge Managing Partner Ben Dell said in a statement the investment firm was “pleased to see that Resolute’s management team has finally acted.”
“However, we feel that the proposed purchase price undervalues Resolute,” Dell added in an emailed statement. A spokeswoman for Kimmeridge declined to comment further.
As part of the deal, Resolute shareholders have the option to receive 0.3943 shares of Cimarex common stock, $35 per share in cash, or a combination of $14 per share in cash and 0.2366 share of Cimarex common stock.
For the all-cash offer, the deal represents a 15 percent premium to Resolute’s Friday closing price of $30.49 per share.
Based on 23.16 million Resolute shares, the deal is worth $810.7 million, according to Reuters’ calculation. Including debt, the deal is worth $1.6 billion, Cimarex said.
Monday’s deal adds 35,000 boe/d to Cimarex’s production base. It is expected to be completed by the end of the first quarter.
Shares of Cimarex fell about 0.5 percent to $88.28, while those of Resolute, which have been down 3 percent so far this year, rose 14.4 percent to $34.88 in late-afternoon trade.
Reporting by Shanti S Nair and Debroop Roy in Bengaluru and David French in New York; Editing by Arun Koyyur and Richard Chang