OKLAHOMA CITY, July 08, 2024 (GLOBE NEWSWIRE) — Devon Energy (NYSE: DVN ) announced today 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 of $3.25 billion in cash and $1.75 billion in stock to the sellers. The transaction is subject to customary terms and conditions, including various purchase price adjustments, and is expected to close at the end of the third quarter of 2024, with an effective date of June 1, 2024.
“The acquisition of Grayson Mill is an excellent strategic fit for Devon that allows us to efficiently expand our oil production and operating scale while capturing a significant track of highly economical drilling inventory,” said Rick Muncrief, president and CEO of Devon. “This transaction also creates immediate value within our financial framework by delivering sustainable earnings growth and free cash flow that will result in higher distributions to shareholders over time.”
TRANSACTION HIGHLIGHTS
- Immediately incremental to financial metrics – The transaction is immediately accretive to Devon’s key financial measures per share, including earnings, cash flow, free cash flow and net asset value. The assets were purchased at less than 4 times EBITDAX, with an estimated free cash flow yield of 15 percent at an $80 WTI oil price.
- Increases the scale and scope of operations – The acquisition adds a high-margin production mix that further positions Devon as one of the largest oil producers in the US Proforma for the transaction, the company estimates its average oil production at 375,000 barrels per day, with production total reaching an average of 765,000 barrels of oil equivalent (Boe) per day across its diversified portfolio of assets.(1)
- Transforms Williston Basin business – The transaction significantly expands the company’s position in the Williston Basin by adding 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. With expanded scale in the basin, Devon expects to realize up to $50 million in average annual cash flow savings from operating efficiencies and marketing synergies. The acquisition also adds 500 gross locations and 300 high-quality refrac candidates that compete effectively for capital to the company’s portfolio. On a pro forma basis, Devon will have an inventory life of up to 10 years in the Williston Basin at a constant development rate of three operated rigs.
- Middle ownership increases the margin – The acquired business generates operating margins in the Williston Basin that benefit from ownership of midstream infrastructure in 950 miles of gathering systems, an extensive network of disposal wells and crude storage terminals. This middle ownership creates margin growth of more than $125 million of EBITDAX annually and provides marketing options to capture higher prices through entry points into multiple end-use markets.
- Improves the prospect of return of capital to shareholders – Due to the free cash flow accretive nature of this transaction, Devon’s board of directors has expanded its share repurchase authorization by 67 percent to $5 billion through mid-2026. The company also expects this acquisition to accretive life for the company’s dividend payments in 2025 and beyond.
- Maintains a strong financial position – The structure of the transaction supports Devon to maintain its strong investment grade credit ratings with an anticipated net debt to EBITDAX ratio of approximately 1.0 times post-closing. The company plans to improve its financial strength by allocating up to 30 percent of its annual free cash flow toward debt reduction of $2.5 billion over the next two years.
(1) Pro forma production is a combination of Devon’s 2024 guidance and Grayson Mill’s 2025e volumes of ~100 MBOED (~55% oil).
FINANCING DETAILS
Devon will finance the $5 billion acquisition with $3.25 billion in cash and issue 37 million common shares valued at $1.75 billion. The company plans to finance the cash portion of the purchase price through a combination of cash and debt.
GENERAL 2024
Devon will provide updated forward-looking guidance for 2024 following the closing of the transaction.
advisors
Citi is serving as financial advisor and Kirkland & Ellis LLP is serving as legal advisor to Devon.
WEBCAST CONFERENCE CALL AND SUPPLEMENTAL 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 related presentation materials can be accessed from Devon’s home page at www.devonenergy.com.
ABOUT DEVON ENERGY
Devon Energy is a leading US oil and gas producer with a premiere multi-basin portfolio led by a world-class acreage position in the Delaware Basin. Devon’s disciplined cash-return business model is designed to achieve strong 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
STATEMENT IN ADVANCE SEARCH
This press release contains forward-looking statements within the meaning of federal securities laws. Such 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: delay or failure to complete the transaction due to unsatisfied closing conditions, such as regulatory approvals, or other factors; the final amount of cash to be paid or the amount of equity to be issued in the transaction due to purchase price adjustments or otherwise; the risk that, if acquired, Greyson Mill Energy’s business does 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 any such statements are not guarantees of future performance and that actual results or developments may differ materially from those anticipated in the forward-looking statements. The forward-looking statements in this press release are made as of the date hereof, and the company undertakes no obligation to update the forward-looking statements as a result of new information, future events or otherwise.
NON-GAAP STATEMENT
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 making accurate forecasts and projections of some of the information excluded from these forward-looking measures, together with some of the components of the calculations being inherently unpredictable, Devon is unable to determine certain quantities that would be required. included in the most comparable GAAP financial measures without unreasonable effort. Accordingly, no disclosure of comparable GAAP measures is included and no reconciliation of forward-looking non-GAAP financial measures is included. Such 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 GAAP. For additional disclosures regarding Devon’s historical non-GAAP measures, including how we determine such measures, please refer to Devon’s first quarter 2024 earnings materials and related Form 10-Q filed with the SEC.
CAUTIONARY NOTE ON RESERVES AND RESOURCE ESTIMATES
The SEC allows oil and gas companies, in their SEC filings, to disclose only proven, probable, and probable 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 anticipated by the latest reserve reporting guidelines. of the SEC. You are urged to consider closely the oil and gas disclosures in the Company’s 2023 Annual Report on Form 10-K and our other reports and filings with the SEC.