Devon Energy Seals the Deal: Acquires Bakken Driller Grayson Mill

Devon Energy expands its Williston Basin presence through a definitive purchase agreement to acquire Grayson Mill Energy's assets in the region. The deal is valued at $5 billion. The deal includes $3.25 billion in cash and $1.75 billion in stock issued to the sellers. This transaction is subject to standard terms and conditions, including several purchase price adjustments. Transaction completion is expected by Q3 2024, with a retroactive effective date of June 1, 2024.

Rick Muncrief, President and CEO of Devon, commented on the acquisition of Grayson Mill, describing it as a strategic fit that enhances their oil production capabilities and operational scale efficiently. He highlighted the acquisition's significance in providing a substantial inventory of economically viable drilling opportunities. Muncrief emphasized that the transaction immediately adds value within Devon's financial framework, contributing to sustainable earnings accretion and increased free cash flow. He noted that these benefits will ultimately lead to higher distributions to shareholders, underscoring the strategic importance and financial benefits of the acquisition for Devon.

The transaction is immediately accretive to Devon's key per-share financial metrics, including earnings, cash flow, free cash flow, and net asset value. The assets were acquired at a valuation of less than 4-times EBITDAX, with an estimated free cash flow yield of 15 percent at an $80 WTI oil price. This acquisition significantly boosts Devon's high-margin production mix, reinforcing its position as one of the largest oil producers in the U.S. Post-transaction, Devon anticipates its oil production will average 375,000 barrels per day, with total production reaching an average of 765,000 barrels of oil equivalent (Boe) per day across its diversified asset portfolio.

Through this acquisition, Devon significantly strengthens its foothold in the Williston Basin, securing an expansive 307,000 net acre portfolio with a dominant 70% working interest. The acquired properties are projected to sustain production at approximately 100,000 barrels of oil equivalent per day (55 percent oil) by 2025.

Devon's expanded Williston Basin presence is expected to unlock significant cost savings. By leveraging economies of scale and optimizing marketing efforts, they project to generate up to $50 million in annual cash flow improvements. Additionally, the acquisition includes 500 gross locations and 300 high-quality refracture candidates, enhancing Devon's competitive capital allocation within its portfolio.

On a pro forma basis, Devon estimates an inventory life of up to 10 years in the Williston Basin, assuming a steady development pace of three operated rigs.

The acquired business in the Williston Basin boasts industry-leading operating margins, bolstered by Devon's ownership of midstream infrastructure encompassing 950 miles of gathering systems, an extensive network of disposal wells, and crude storage terminals. This strategic ownership not only enhances operational efficiencies but also generates an annual EBITDAX uplift exceeding $125 million. Furthermore, it affords Devon enhanced marketing flexibility, enabling access to diverse end-use markets and the ability to capture premium pricing.

The transaction significantly enhances Devon's capacity to return capital to shareholders. Fueled by the immediate free cash flow accretion from this acquisition, Devon's board of directors has expanded its share repurchase program by 67 percent, authorizing up to $5 billion in buybacks through mid-2026. Additionally, the company anticipates the transaction will contribute to the growth of its dividend payout starting in 2025, underscoring its commitment to delivering shareholder value.

Maintaining a robust financial position remains a priority for Devon post-acquisition. The transaction's structured approach ensures Devon retains its strong investment-grade credit ratings, projected to maintain a net debt-to-EBITDAX ratio of approximately 1.0 times upon closure. Devon plans to bolster its financial resilience by allocating up to 30 percent of annual free cash flow towards reducing $2.5 billion in debt over the next two years, further solidifying its financial foundation for sustained growth and profitability.