OKLAHOMA CITY–(BUSINESS WIRE)–Devon Energy Corp. (NYSE:DVN) today announced it has agreed to acquire 80,000 net surface acres, with up to 10 prospective zones, in the Anadarko Basin STACK play from privately held Felix Energy, a portfolio company of EnCap Investments, for $1.9 billion. In a separate transaction, the Company has also agreed to acquire 253,000 net acres in the Powder River Basin for $600 million. The transactions will be funded with approximately $1.35 billion of Devon equity issued to sellers and approximately $1.15 billion of cash on hand and borrowings.
“Devon has made several bold moves over the past few years transforming the company into a leading North American onshore producer with a portfolio that provides an advantaged platform to generate long-term value growth for shareholders,” said Dave Hager, president and CEO. “These acquisitions materially core up our position in two of the best emerging North America development oil plays and further upgrade our asset portfolio.”
“The success we have had growing our asset base has generated an abundance of opportunities within our portfolio,” said Hager. “In an effort to focus exclusively on our very best resource plays, strengthen our already solid financial position and drive investor value, we are also announcing our intent to divest non-core assets. This will sharpen our focus on what we believe to be the best oil and gas assets in North America.”
The EnLink Advantage Secures STACK Acquisition
In a related transaction announced separately today, EnLink Midstream agreed to acquire Tall Oak Midstream, a portfolio company for EnCap Flatrock Midstream, for $1.55 billion. Tall Oak’s gathering and processing assets are strategically located in the core area of the STACK play and the vast majority of the Felix acreage position is dedicated to this midstream infrastructure.
“We are excited about the opportunity presented with the Felix and Tall Oak acquisitions,” said Hager. “The synergistic relationship of these assets and our ownership in EnLink allowed the simultaneous acquisition of Felix’s upstream business by Devon with EnLink acquiring the associated midstream infrastructure of Tall Oak. This collaboration was a competitive advantage in securing these top-tier assets and a testament to the strength of our partnership which is well positioned to benefit from the significant upside the resource-rich STACK play offers.”
Best-In-Class Position in STACK Play
The 80,000 net surface acres being acquired in the STACK play are located in Blaine, Canadian and Kingfisher counties in Oklahoma, immediately northeast of Devon’s legacy STACK position. Situated in the over-pressured oil window of the play, these properties include low-risk development targets in up to 10 intervals including multiple landing zones in the Meramec, Osage and Woodford formations. Given the potential for numerous landing zones and tighter infill spacing opportunities across this high-quality acreage, Devon has identified 1,400 risked locations, with an unrisked inventory of more than 3,000 locations.
The acquired properties include production of approximately 9,000 oil-equivalent barrels (Boe) per day and estimated risked resource of approximately 400 million Boe. Based on an estimated value of the existing daily production in excess of $300 million, the Company estimates it is paying approximately $20,000 per surface acre or approximately $4 per Boe of risked resource.
“This acquisition has captured a significant position in the most economic portion of the STACK oil window, which is emerging as one of the top resource plays in North America,” said Tony Vaughn, executive vice president of exploration and production. “Combined with our current acreage position we have created a best-in-class STACK position that provides significant resource and drilling inventory to support visible growth for many years to come.”
Upon closing of the Felix assets in early 2016, Devon’s daily production in the STACK play, which includes the Cana-Woodford development, will increase to an industry-leading total of nearly 80,000 Boe per day. The Company now has exposure to 430,000 net surface acres in the STACK with 5,300 risked locations.
Achieving Scale in the Powder River Basin
The acquired Powder River Basin acreage is located to the south of Devon’s legacy position in Wyoming and includes production of 7,000 Boe per day, with approximately 85 percent oil. This leasehold resides in the core of the Powder River oil fairway and is most prospective for the Parkman, Turner and Teapot formations. The contiguous acreage allows for extended-reach horizontal drilling and the Company has conservatively identified 500 development-ready locations with potential for as many as 2,700 unrisked locations as appraisal drilling further derisks multiple formations in the oil fairway.
“This opportunistic transaction adds scale and scope to our Powder River Basin operations, creating the largest and highest quality acreage position in the industry,” said Vaughn. “Our Powder River programs are delivering some of the best returns at Devon, and we will apply our unique basin knowledge to efficiently develop and derisk this premium acreage position.”
After deducting the value of current production at $30,000 per flowing barrel and $100 million of midstream infrastructure, Devon secured the undeveloped leasehold at roughly $1,100 per acre.
Upon closing the transaction, Devon’s daily production from its Rockies business unit will increase to more than 30,000 Boe per day, and its Powder River Basin leasehold position will more than double to 470,000 net acres with stacked-pay potential across multiple oil-prone formations. The size of the opportunity is significant with several billion barrels of unrisked resource across the basin.
Funding Details and Non-Core Asset Sale Expectations
The acquisitions will initially be funded with a combination of equity and cash. Devon will issue shares to sellers valued at approximately $1.35 billion and intends to fund the balance of the acquisitions through cash on hand and borrowings.
The Company is in the process of marketing its Access Pipeline in Canada and is also planning to monetize various non-core upstream assets across its portfolio. Devon has identified 50,000 to 80,000 Boe per day of production from non-core assets to divest throughout 2016. The Company expects midstream and upstream divestitures to generate proceeds of $2 to $3 billion and plans to utilize sales proceeds to strengthen its financial position.
Conference Call and Webcast Information
Devon will discuss these transactions on a conference call and webcast at 8 a.m. Eastern Time on Monday, December 7, 2015. The webcast may be accessed from Devon’s home page at www.devonenergy.com.
The financial advisor to Devon for the Felix transaction was Morgan Stanley & Co. LLC. The financial advisor to Felix was Tudor, Pickering, Holt & Co.
This press release includes “forward-looking statements” as defined by the Securities and Exchange Commission (SEC). Such statements include those concerning strategic plans, expectations and objectives for future operations, and are often identified by use of the words “expects,” “believes,” “will,” “would,” “could,” “forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. Statements regarding future drilling and production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, the failure to consummate the transaction with the sellers due to unsatisfied closing conditions or otherwise; the risk that the assets to be acquired will not be integrated successfully or that such integration will take longer than anticipated; the volatility of oil, natural gas and NGL prices; uncertainties inherent in estimating oil, natural gas and NGL reserves, including with respect to the assets to be acquired; the extent to which we are successful in acquiring and discovering additional reserves; unforeseen changes in the rate of production from our oil and gas properties; uncertainties in future exploration and drilling results; uncertainties inherent in estimating the cost of drilling and completing wells; drilling risks; competition for leases, materials, people and capital; midstream capacity constraints and potential interruptions in production; risk related to our hedging activities; environmental risks; political changes; changes in laws or regulations; our limited control over third parties who operate our oil and gas properties; our ability to successfully complete mergers, acquisitions and divestitures; and other risks identified in our Form 10-K and our other filings with the 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 projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date of this press release, even if subsequently made available by Devon on its website or otherwise. Devon does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.
The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC’s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This release may contain certain terms, such as resource potential, risked resource, potential locations, risked or unrisked locations, exploration target size and other similar terms. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10-K, available at www.devonenergy.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or from the SEC’s website at www.sec.gov.
About Devon Energy
Devon Energy is a leading independent energy company engaged in finding and producing oil and natural gas. Based in Oklahoma City and included in the S&P 500, Devon operates in several of the most prolific oil and natural gas plays in the U.S. and Canada with an emphasis on a balanced portfolio. The Company is the second-largest oil producer among North American onshore independents. For more information, please visit www.devonenergy.com.