• Sign up for the Daily Digest E-mail
  • Facebook
  • Twitter
  • LinkedIn

BOE Report

Sign up
  • Home
  • Headlines
    • Latest Headlines
    • Columns
    • Discussions
  • Well Activity Map
  • Property Listings
  • Land Sales
  • M&A Activity
    • M&A Database
    • AER Transfers
  • Markets
  • Rig Counts
    • CAODC Rig Count
    • Baker Hughes Rig Count
    • USA Rig Count
  • Industry Data
    • Canada Well Licences
    • USA Market Data
    • Data Subscription
  • Jobs

Devon-WPX deal offers a playbook for future shale consolidation

September 29, 20208:00 AM Reuters0 Comments

The latest business combination in the U.S. shale patch is signaling a path forward for the troubled sector.

In contrast to the bankruptcies of the past three months, Devon Energy ‘s $2.56 billion all-stock, low premium deal for rival WPX Energy brings together two companies with assets in a few oil-producing basins and relatively low debt levels.

Investors supported the idea with a rally in shares. WPX closed up 16.4% on Monday and Devon gained 11%, buoyed by the prospect of a combined company that analysts believe would be better positioned to pay dividends and reduce debt.

Shale has been hammered by the COVID-19 pandemic that has slashed global demand for oil and investors have shunned the sector’s poor returns.

“This deal represents the form of shale company consolidation that many across the industry have been looking for,” said Andrew Dittmar, a mergers and acquisitions analyst at Enverus.

He cited the complementary acreage in the top U.S. shale field, the all-stock swap and the little-to-no premium paid. The selling point for investors, he added, is that the combined company will have added scale and efficiencies to generate free cash flow for its investors at current low oil prices.

It is the second big shale deal with a similar profile. Chevron earlier agreed to buy Noble Energy for $13 billion including debt, in a low-premium, all-stock deal. Noble investors are due to vote on the offer on Friday.

Devon and WPX have similar profiles with substantial operations in the Permian Basin shale field in West Texas and southern New Mexico. The two have also been hit hard by the oil-price plunge.

The need for shale consolidation is clear. Whiting Petroleum Corp recently emerged from Chapter 11 bankruptcy with less debt, while Oasis Petroleum Inc entered into a grace period after failing to make interest payments on some bonds.

Devon-WPX combined will have a net debt-to-EBITDA ratio of 1.6 on a trailing 12-month basis, much lower than the 2.92 average of companies in the S&P 500 Energy index , according to Refinitiv Eikon data.

The deal also signals that companies with higher debt-to-equity ratios could be left out in the cold as shale producers consolidate.

“It potentially leaves some over-levered companies without dance partners”, said Dan Pickering, founder and chief investment officer at asset manager Pickering Energy Partners.

“You certainly aren’t going to pay up to get riskier.”

Devon and WPX have committed to limiting future investments to 70% to 80% of operating cash flow and volume growth to a maximum of 5%.

“Shale didn’t work because folks threw too much money at it to grow too quickly,” Pickering said. “It feels like we now have the play book.”

29dk2902l

Chevron Devon Energy

Follow the BOE Report
  • Facebook
  • Twitter
  • LinkedIn
Sign up for the BOE Report Daily Digest E-mail
Latest Headlines
  • Perpetual Energy Inc. announces extension of credit facility redetermination
  • Heavy crude edges tighter on first day of new monthly trade cycle
  • Oil executives say demand will rise, despite emphasis on renewables
  • ARC Resources and Seven Generations to hold special shareholder meetings on proposed business combination
  • Oil rises on vaccine optimism, U.S. stimulus

Return to Home
Alberta Gas
CAD/GJ
Market Data by TradingView





    Note: The page you are currently on will be sent with your report. If this report is about a different page, please specify.

    About
    • About BOEReport.com
    • In the News
    • Terms of Use
    • Privacy Policy
    Resources
    • App
    • Widgets
    • Notifications
    • Daily Digest E-mail
    Get In Touch
    • Advertise
    • Post a Job
    • Contribute
    • Contact
    • Report Error
    Featured In
    • CamTrader
    • Rigger Talk
    Data Partner
    • Foxterra
    BOE Network
    © 2021 Grobes Media Inc.