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Devon Energy buys acreage in Eagle Ford shale in Texas

By Bob Downing Published: November 20, 2013

From Devon Energy today:

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    Devon Energy Announces Acquisition of Eagle Ford Assets from GeoSouthern Energy
    • Acquired at 2.5 times expected 2015 EBITDA
    • Immediately accretive to cash flow per debt-adjusted share
    • Delivering a multi-year compound annual oil growth rate of 25 percent per year
    • Includes current production of 53,000 barrels of oil equivalent per day
    • Risked resource of 400 million oil equivalent barrels

    OKLAHOMA CITY & THE WOODLANDS, Texas--(BUSINESS WIRE)--Nov. 20, 2013-- Devon Energy Corporation (NYSE:DVN) announced today it has reached a definitive agreement to acquire GeoSouthern Energy’s assets in the Eagle Ford oil play for $6 billion in cash. The acquired assets include current production of 53,000 barrels of oil equivalent (BOE) per day and 82,000 net acres with at least 1,200 undrilled locations. The risked recoverable resource is estimated at 400 million barrels of oil equivalent, the majority of which is proved reserves.

    “With this transaction, we have secured a premier acreage position in the very best part of the world-class Eagle Ford oil play. This acquisition enhances our already strong North American portfolio by adding another low-risk, light oil asset that provides outstanding well economics and self-funded growth,” said John Richels, Devon's president and chief executive officer. “Furthermore, this transaction is expected to be immediately accretive to virtually every metric, including cash flow per debt-adjusted share.”

    The acquired Eagle Ford acreage is located in DeWitt and Lavaca counties in Texas and is largely contiguous, with most of the position held by production. The acreage position is located in the best part of the play, as evidenced by the highest average initial production rates in the entire play and average estimated ultimate recoveries in DeWitt County exceeding 800,000 BOE per well.

    “We have considered many acquisition opportunities over the past few years, but none have met our stringent criteria,” said Richels. “Our patience and disciplined approach have culminated in this outstanding opportunity, allowing us to secure these world-class light oil assets at 2.5 times expected 2015 EBITDA. Companies with concentrated asset positions in the best oil plays in the country, such as the Eagle Ford, Bakken, and Permian Basin, are trading at substantially higher multiples.”

    The majority of the acquired acreage is located in DeWitt County and is derisked, with at least one producing well in each drilling unit. By entering the play in full development mode, Devon expects to substantially grow production in the near term while also generating significant free cash flow. The acquired assets are expected to grow at a compound annual growth rate of 25 percent over the next several years, reaching a peak production rate of approximately 140,000 BOE per day. The development drilling program is immediately self-funding and expected to generate annual free cash flow of approximately $800 million beginning in 2015 and growing thereafter.

    “The addition of these assets leverages our core competencies,” said Dave Hager, Devon’s chief operating officer. “The technical expertise and project management experience developed in our other large scale, unconventional development plays provide us the skillset to efficiently develop these assets and optimize the value through improved recoveries and reduced costs. GeoSouthern was a true pioneer in this world-renowned field, and we are pleased to welcome their team to Devon and look forward to building upon their outstanding results in the play.”

    The acquisition will be funded with a combination of cash on hand and borrowings. Devon expects to repay the borrowings with free cash flow and proceeds from the monetization of non-core assets. The transaction is subject to customary purchase price adjustments, terms and conditions, and is expected to close in the first quarter of 2014.

    GeoSouthern, one of the first companies to successfully execute in the Eagle Ford oil play, will continue to operate all of its other assets in the Texas Gulf Coast region and other areas. The Blackstone Group (NYSE: BX), GeoSouthern’s corporate partner, will exit its stake in the company through this transaction.

    Advisors

    The legal advisor to Devon for this transaction is Skadden, Arps, Slate, Meagher & Flom LLP. Morgan Stanley and Goldman, Sachs & Co. served as financial advisors to Devon. The legal advisor to GeoSouthern is Simpson Thacher & Bartlett LLP. Jefferies & Company, Inc. served as financial advisor to GeoSouthern.

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