With E&Ps exhausting resources and maneuvering to shore up portfolios and make additional investments, the M&A department has been a hotbed of activity. After carefully designing a playbook of success, Devon Energy plans to increase the size of its footprint with a purchase agreement to acquire Grayson Mill Energy’s Williston Basin assets. Pegged at a $5 billion value, the deal will comprise $3.25 billion in cash and the remaining $1.75 in stock.
“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 meaningful runway of highly economic drilling inventory,” said Rick Muncrief, President and CEO of Devon Energy.
With the Williston Basin still attractive, Devon will acquire over 300,000 acres in the area. Evaluation of current assets and the addition of these indicate Devon will triple its current acreage plot and is expected to prop the E&P up to produce over 150,000 barrels of oil equivalent daily next year.
“This transaction also creates immediate value within our financial framework by delivering sustainable accretion to earnings and free cash flow that will result in higher distributions to shareholders over time,” added Muncrief.
According to a recent press release published at www.devonenergy.com, the Grayson Mill transaction will immediately accretive to Devon’s financial metrics. This will affect earnings, cash flow, free cash flow, and net asset value. The Grayson Mill assets boast an estimated free cash flow yield of 15 percent at an oil price of $80 WTI.
Completing this acquisition solidifies Devon’s place as one of the largest domestic oil producers. The production expected from the Grayson Mill properties will likely hold at approximately 100,000 BOE per day next year. Fifty-five percent of that production is identified as oil. With the added production, Devon plans to capitalize on a potential $50 million average annual cash flow savings from operating efficiencies and marketing strategies.
The Grayson Mill acquisition is also expected to add 500 gross locations and another 300 high-quality refract sites. Devon predicts up to ten years in Williston Bason inventory life, flanked by a continual development pace without interruption, compliments of three operated rigs.
Through the acquisition, Devon will also enjoy an impressive midstream footprint. This includes 950 miles of gathering systems, disposal wells, and a robust network of crude storage terminals. The Grayson Mill midstream piece enables an uplift in margins, equating to more than $125 million of EBITDAX annually while also paving the way to secure increased pricing through multiple venues at end-use markets.
Devon benefits significantly from the free cash flow aspect of the acquisition. As a result, Devon’s board has implemented a 67 percent share-repurchase authorization, which will see $5 billion through the middle of 2026. With what appears to be an upside gained at each vantage point, Devon should maintain a strong and stable financial position largely due to its plan of directing 30 percent of its annual free cash flow at reducing $2.5 billion in debt over a two-year consecutive term.
As Citi Kirkland and Ellis LLP guide Devon through the financial and legal parameters of the acquisition, the E&P will continue its operations throughout the United States. The Grayson Mill transaction is expected to close by the end of this year’s third quarter.
Nick Vaccaro is a freelance writer and photographer. In addition to providing technical writing services, he is an HSE consultant in the oil and gas industry with twelve years of experience. Vaccaro also contributes to SHALE Oil and Gas Business Magazine, American Oil and Gas Investor, Oil and Gas Investor, Energies Magazine and Louisiana Sportsman Magazine. He has a BA in photojournalism from Loyola University and resides in the New Orleans area. Vaccaro can be reached at 985-966-0957 or nav@vaccarogroupllc.com.
