OKLAHOMA CITY, July 08, 2024 (GLOBE NEWSWIRE) — Devon Energy (NYSE: DVN) today announced that it has entered into a definitive purchase agreement to acquire Grayson Mill Energy’s Williston Basin business in a transaction valued at $5 billion, consisting of $3.25 billion in cash and $1.75 billion in stock for the sellers. The transaction is subject to customary terms and conditions, including various purchase price adjustments, and is expected to close by the end of the third quarter of 2024, with an effective date of June 1, 2024.
“The acquisition of Grayson Mill is an excellent strategy for Devon as it allows us to efficiently increase our oil production and operating scale while capturing a significant pipeline of highly profitable drilling inventory,” said Rick Muncrief, Devon’s president and chief executive officer. “This transaction also creates immediate value in our financial framework by generating sustainable earnings and free cash flow growth that will translate into higher distributions to shareholders over time.”
TRANSACTION HIGHLIGHTS
- Immediately positive effect on financial indicators – The transaction is immediately accretive to Devon’s key per-share financial metrics, including earnings, cash flow, free cash flow and net asset value. The assets were acquired at less than 4x EBITDAX, with an estimated free cash flow yield of 15% at a WTI oil price of $80.
- Improves scale and scope of operations – The acquisition adds a high-margin production mix that positions Devon as one of the largest oil producers in the United States. Pro forma for the transaction, the company estimates its oil production to average 375,000 barrels per day, with total production averaging 765,000 barrels of oil equivalent (Boe) per day across its diversified portfolio of assets.(1)
- Transforms Williston Basin operations – The transaction significantly expands the Company’s position in the Williston Basin with the addition of 307,000 net acres (70 percent working interest). Production from the acquired properties is expected to be maintained at approximately 100,000 boe per day (55 percent oil) in 2025. Through the increased scale in the basin, Devon expects to realize up to $50 million in average annual cash flow savings through operational efficiencies and marketing synergies. The acquisition also adds 500 gross plays and 300 high-quality refractory candidates that effectively compete for capital in the Company’s portfolio. On a pro forma basis, Devon will own an inventory life of up to 10 years in the Williston Basin at a steady rate of development from three operated platforms.
- Midstream ownership improves margin – The acquired business generates some of the best operating margins in the Williston Basin, benefiting from ownership of midstream infrastructure across 950 miles of gathering systems, an extensive network of disposal wells and crude storage terminals. This midstream ownership creates margin accretion of over $125 million of EBITDAX per year and provides marketing options to capture higher pricing through access points to multiple end-use markets.
- Improves prospects for return of capital to shareholders – Due to the free cash flow accretive nature of this transaction, Devon’s Board of Directors has extended its share repurchase authorization by 67% to $5 billion through mid-2026. The Company also expects this acquisition to be accretive to the Company’s dividend payments in 2025 and beyond.
- Maintains a strong financial position – The transaction structure allows Devon to maintain its strong investment grade credit rating with a projected net debt to EBITDAX ratio of approximately 1.0 times at closing. The company expects to enhance its financial strength by allocating up to 30% of its annual free cash flow to reduce $2.5 billion of debt over the next two years.
(1) Pro forma production is a combination of Devon’s 2024 forecast and Grayson Mill’s 2025 volumes of approximately 100 MBOED (approximately 55% oil).
FINANCING DETAILS
Devon will finance the $5 billion acquisition with $3.25 billion in cash and issue 37 million shares of common stock valued at $1.75 billion. The company plans to finance the cash portion of the purchase price through a combination of cash on hand and debt.
OUTLOOK 2024
Devon will provide updated forward guidance for 2024 upon closing of the transaction.
ADVISORS
Citi is acting as financial advisor and Kirkland & Ellis LLP is acting as legal advisor to Devon.
WEBCAST CONFERENCE CALL AND ADDITIONAL MATERIALS
Devon will host a conference call and webcast today at 7:30 a.m. Central Time (8:30 a.m. Eastern Time) to discuss this announcement. The webcast and associated presentation materials can be accessed from Devon’s homepage at www.devonenergy.com.
ABOUT DEVON ENERGY
Devon Energy is a leading U.S. oil and gas producer with a premier multi-basin portfolio, including world-class acreage in the Delaware Basin. Devon’s disciplined, cash-based business model is designed to generate high returns, generate free cash flow and return capital to shareholders, while focusing on safe and sustainable operations.
Devon Investor Contacts
Scott Coody, 405-552-4735
Chris Carr, 405-228-2496
Devon Media Contact
Brooke Baum, 405-552-3448
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements within the meaning of the federal securities laws. These statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the Company’s control. These risks include, but are not limited to: the delay or failure to complete the transaction due to unsatisfied closing conditions, such as regulatory approvals, or other factors; the ultimate amount of cash consideration to be paid or stock consideration to be issued in connection with the transaction due to purchase price adjustments or otherwise; the risk that, if acquired, the Grayson Mill Energy business may not perform in accordance with our expectations, including with respect to future production or drilling inventory; and other risks identified in the Company’s 2023 Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission (SEC). Investors are cautioned that such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements contained in this press release are made as of the date hereof and the Company assumes no obligation to update any forward-looking statements as a result of new information, future events or otherwise.
NON-GAAP DISCLOSURES
This press release includes non-GAAP (Generally Accepted Accounting Principles) financial measures, including projections of the non-GAAP financial measures of EBITDAX and free cash flow on a combined basis. Due to the high variability and difficulty in accurately forecasting and projecting some of the information excluded from these projected measures, as well as the inherent unpredictability of certain components of the calculations, Devon is unable to quantify certain amounts that should be included in the most directly comparable GAAP financial measures without unreasonable effort. Accordingly, no disclosure of estimated comparable GAAP measures is included and no reconciliation of forward-looking non-GAAP financial measures is included. These non-GAAP measures are not alternatives to GAAP measures and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of results as reported in accordance with GAAP. For additional information about Devon’s non-GAAP historical measures, including how we define such measures, please refer to Devon’s first quarter 2024 earnings materials and the associated Form 10-Q filed with the SEC.
DISCLAIMER ON RESERVE AND RESOURCE ESTIMATES
The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. Any reserve estimates provided in this press release that are not specifically designated as proved reserve estimates may include estimated reserves or locations that are not necessarily calculated in accordance with or contemplated by the SEC’s most recent reserves reporting guidance. We urge you to carefully review the oil and gas information contained in the Company’s 2023 Annual Report on Form 10-K and our other reports and filings with the SEC.