Energy Company Acquires Oil-and-Gas Producer In $5 Billion Deal
Devon Energy Acquires Grayson Mill Energy in $5 Billion Deal.
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Devon Energy (NYSE: DVN) has announced an agreement to acquire Grayson Mill Energy, a prominent oil-and-gas producer operating in the Williston Basin. The acquisition, valued at $5 billion, includes $3.25 billion in cash and $1.75 billion in stock. The transaction is expected to close by the end of the third quarter of 2024, with an effective date of June 1, 2024, subject to customary terms and conditions, including various purchase price adjustments. Rick Muncrief, Devon’s president and CEO, stated, “The acquisition of Grayson Mill is an excellent fit for Devon that allows us to efficiently expand our oil production and operating scale while capturing a meaningful runway of highly economic drilling inventory." He further emphasized that the transaction would create immediate value within Devon's financial framework by delivering sustainable accretion to earnings and free cash flow, which will result in higher distributions to shareholders over time.
One of the standout features of this transaction is its immediate positive impact on Devon Energy's financial metrics. The deal is accretive to key per-share financial measures, including earnings, cash flow, free cash flow, and net asset value. The assets were acquired at less than four times EBITDAX, with an estimated free cash flow yield of 15 percent at an $80 WTI oil price. The acquisition enhances Devon Energy’s operational scale and scope. With the addition of Grayson Mill Energy’s assets, Devon is positioned as one of the largest oil producers in the United States. Post-transaction, the company projects its oil production to average 375,000 barrels per day, with total production reaching an average of 765,000 oil-equivalent barrels (Boe) per day across its diversified portfolio of assets. This increase in production capacity is instrumental in solidifying Devon’s position in the competitive landscape of the U.S. oil market.
The acquisition marks a transformative expansion of Devon’s presence in the Williston Basin. The deal includes 307,000 net acres with a 70 percent working interest. Production from these acquired properties is expected to be maintained at approximately 100,000 Boe per day (55 percent oil) in 2025. This enhanced scale in the basin is expected to yield up to $50 million in average annual cash flow savings from operating efficiencies and marketing synergies. The acquisition brings 500 gross locations and 300 high-quality refrac candidates, extending Devon’s inventory life in the Williston Basin to up to 10 years at a constant development pace of three operated rigs.
A notable aspect of the acquired business is its midstream infrastructure ownership, which plays a crucial role in enhancing operating margins. The midstream assets include 950 miles of gathering systems, an extensive network of disposal wells, and crude storage terminals. This infrastructure provides a margin uplift of more than $125 million of EBITDAX annually and offers marketing optionality to capture higher pricing through access points to multiple end-use markets. The integration of these midstream assets is expected to provide stability and increased profitability to Devon’s operations in the Williston Basin.
Enhanced Return of Capital to Shareholders
The accretive nature of this transaction to free cash flow has prompted Devon’s board of directors to expand its share-repurchase authorization by 67 percent to $5 billion through mid-year 2026. The expanded share repurchase program is anticipated to provide a substantial return to shareholders and enhance long-term value. The rationale behind Devon Energy's acquisition of Grayson Mill Energy is multifaceted. First and foremost, the deal allows Devon to efficiently expand its oil production and operational scale. The addition of a runway of highly economic drilling inventory strengthens Devon’s resource base and production potential. The acquisition is aligned with Devon’s strategy to enhance its presence in core operating areas, such as the Williston Basin, where it can leverage existing infrastructure and expertise.
The transaction also provides Devon with immediate financial benefits. The accretive nature of the deal to earnings and free cash flow ensures that the acquisition contributes positively to Devon’s financial health from the outset. This immediate accretion is vital for maintaining investor confidence and supporting the company’s long-term growth objectives. The enhanced scale in the Williston Basin and the addition of midstream infrastructure contribute to operational efficiencies and cost savings. The anticipated $50 million in annual cash flow savings from operating efficiencies and marketing synergies highlight the value of integrating Grayson Mill’s assets into Devon’s portfolio. These efficiencies not only improve profitability but also provide a competitive edge in the market.
The acquisition aligns with Devon’s broader objective of returning capital to shareholders. The expanded share repurchase authorization signifies the company’s commitment to delivering shareholder value and reveals the confidence in the financial benefits of the acquisition. By prioritizing shareholder returns, Devon reinforces its position as a shareholder-friendly company.
Future Outlook and Industry Implications
Looking ahead, the acquisition of Grayson Mill Energy positions Devon Energy for continued growth and success. The expanded production capacity and enhanced operational scale provide a robust platform for future development. The integration of high-quality assets and midstream infrastructure is expected to drive operational efficiencies and cost savings, further strengthening Devon’s competitive position. From an industry perspective, the acquisition reflects the ongoing trend of consolidation within the oil and gas sector. As companies seek to optimize their portfolios and achieve operational efficiencies, mergers and acquisitions play a critical role in shaping the industry landscape.
Devon Energy’s acquisition of Grayson Mill Energy represents a milestone in the company’s growth trajectory. The fit, immediate financial benefits, and enhanced operational scale position Devon for continued success in the competitive oil and gas industry. As the transaction progresses towards closure, stakeholders can anticipate further updates on the integration process and the realization of anticipated benefits.
Disclaimer: The information provided in this article is intended for general informational purposes only and should not be construed as financial, investment, or legal advice. Readers are advised to conduct their own research and seek professional guidance before making any investment decisions.
Real-time information is available daily at https://stockregion.net