Independent energy producer Devon Energy Corporation DVN inked three independent deals, all designed to sharpen the company’s focus in the potential emerging oil plays, amid the global glut in crude prices.
Confirming market rumors, Devon Energy has acquired 80,000 net acres in the Anadarko Basin STACK play from Felix Energy LLC, a smaller operator in the oil and gas space, for nearly $1.9 billion (read:Will Devon Energy Acquire Felix Energy to Add More Oil?).
Devon Energy has also announced the acquisition of 253,000 net acres in Powder River Basin, south of its existing assets in Wyoming, having a production capacity of 7,000 barrels of oil equivalent per day (‘BOED”),,of which oil accounts for 85%. Devon is shelling out $600 million to close this deal.
In a separate transaction, Devon Energy’s joint partnership unit, EnLink Midstream, has entered into an agreement to acquire its peer Tall Oak Midstream for $1.55 billion. Tall Oak has midstream gathering and processing assets in the core areas of the STACK oil play, the STACK natural gas system and STACK crude oil system, which are expected to commence operations in 2016.
Devon's twin acquisitions in the STACK play will catapult the company to an industry-leading position in that play. Upon closing the Felix Energy deal in early 2016, Devon Energy’s production from the region will increase to approximately 80,000 BOE/d .
Further, EnLink's acquisition of Tall Oak will give rise to substantial synergies in Devon's newly acquired STACK acreage because the vast majority of Felix Energy's acreage was dedicated to Tall Oak's midstream infrastructure. This will allow Devon to grow its production in the region without confronting infrastructure constraints.
Devon's acquisition in Powder River Basin will more than double the company's acreage position to 470,000 net acres, giving it the largest and highest quality acreage position in the industry. This will allow Devon to improve its drilling returns. Devon intends to develop significant resources in the Basin following a recovery in commodity prices.
As part of its strategy to focus on core properties and improve its financial position in the face of slumping oil, Devon Energy is looking to sell off its Access Pipeline in Canada and monetize other non-core upstream assets across its portfolio. Devon’s focus on North American properties has led to increased oil output for five quarters in a row. The company is presently following a disciplined capital investment program and implementing cost saving measures to withstand the challenges.
These acquisitions are being funded by issuing $1.35 billion equity and utilizing cash of $1.15 billion. A part of the cash will be sourced by issuing new debts, which in turn will add to the company’s indebtedness. Plunging oil prices and the outcome of the OPEC meet did not go well with investors, with Devon’s shares nearly shedding 10.1% to close at $36.44 per share yesterday.
Zacks Rank
Devon currently has a Zacks Rank #2 (Buy). Some of the other favorably ranked oil and gas exploration and production stocks include Antero Resources Corporation AR and Contango Oil & Gas Company MCF, both sporting a Zacks Rank #1 (Strong Buy) and Apache Corp. APA with the same Zacks rank as Devon Energy.
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