Devon in $1.8B Eagle Ford Deal
Devon Energy Corp (NYSE: DVN) has announced that it has entered into a definitive purchase agreement to acquire Validus Energy, an Eagle Ford operator, for a total cash consideration of $1.8 billion.
The transaction is said to be subject to customary terms and conditions and is expected to close at the end of the third quarter of 2022. According to Devon, the deal is immediately accretive to financial metrics, increases the company’s cash return outlook, and enhances Devon’s Eagle Ford asset quality and scale. Devon also highlighted that the transaction captures “high margin production” and maintains the company’s “top-tier” balance sheet.
Devon outlined that the deal secures a premier acreage position of 42,000 net acres adjacent to the company’s existing leasehold in the basin. Validus’ current production is approximately 35,000 barrels of oil equivalent per day, with volumes expected to increase to an average of 40,000 barrels of oil equivalent per day over the next year, Devon highlighted. The transaction also adds 350 repeatable drilling locations in the core of the Karnes Trough oil window along with 150 high-quality refrac candidates, Devon stated.
“The Validus acquisition captures a top-tier oil resource with a meaningful runway of highly economic inventory that is complementary to our existing footprint in the Eagle Ford,” Rick Muncrief, the president and CEO of Devon, said in a company statement.
“This accretive transaction also enhances our financially-driven strategy that is designed to deliver per-share financial growth and accelerate the return of capital to our shareholders,” he added.
In a statement sent to Rigzone, Andrew Dittmar, a director at Enverus, said the acquisition is the largest in the Eagle Ford since Chesapeake purchased WildHorse Resource Development in late 2018. Dittmar also highlighted that this is the third deal sold by Validus CEO Skye Callantine to Devon, or companies Devon acquired.
“This is the second significant acquisition Devon has announced this summer following the purchase of private RimRock Oil & Gas in the Williston Basin for $865 million as the company embraces a role as a value-oriented consolidator,” Dittmar said in the statement.
“The two purchases have in common targeting production-heavy assets in legacy oil plays that are immediately accretive to Devon’s shareholder return metrics. These assets can be purchased for near the value of existing production without having to pay much for undeveloped inventory. In this deal, the acquisition priced at just 2x cash flow and the purchase price implies a very strong 30 percent free cash flow yield per Devon,” Dittmar added.
In the statement, Dittmar said targeting existing production makes a lot of sense for E&Ps in the current market.
“Companies want to capture as much value as possible while commodity prices are high and adding barrels that are already online is the surest way to do that,” Dittmar stated.
“It also matches investor preferences for immediate capital returns as it is easy to show line-of-sight from a deal like this with its strong cash flow accretion and a boost to dividends and buybacks. That doesn’t mean the assets are entirely devoid of development potential though as the Validus position, while fairly mature, still holds untapped inventory and the potential to revisit older wells with refracs,” he added.
“For the team at Validus, the deal is a strong exit after they acquired the assets from Ovintiv for $880 million in 2021,” Dittmar continued.
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