Page 16 - NorthAmOil Week 39

NorthAmOil INVESTMENT NorthAmOil

Devon to merge

with WPX in $2.6bn

all-stock deal

US SHALE producer Devon Energy has struck a
deal to merge with rival WPX Energy in an all-
stock transaction worth $2.56bn. In a joint Sep-
tember 28 statement, the companies described
the deal as a “merger of equals” that will create a
combined company with an enterprise value of
around $12bn.
Devon’s existing shareholders will own 57%
of the combined company, and WPX sharehold-
ers will receive a 0.5165 share of Devon stock for
each WPX share.
According to the companies’ statement, the
merger will create a “leading unconventional oil
producer in the US, with an asset base under-
pinned by a premium acreage position in the
economic core of the Delaware Basin”. The
combined company, which will be called Devon
Energy after WPX has been folded into it, will
have oil production of 277,000 barrels per day
(bpd) and a multi-basin portfolio. In the Del-
aware, which is a sub-basin of the prolific Per-
mian Basin, the company will own 400,000 net
acres (1,619 square km), which will account for
around 60% of its total output. The company’s
other areas of operation will be in the Anadarko, cycle will happen, so we’re building a combined
Williston and Powder River basins, as well as the company that has the capabilities to withstand
Eagle Ford shale play. all the headwinds but can really prosper in better
The companies also said that cost savings times,” WPX’s CEO, Rick Muncrief, was quoted
from initiatives underway in the second half of by Reuters as saying this week.
2020 and synergies resulting from the merger And early responses to the merger suggest
were expected to boost cash flow by around that Devon’s combination with WPX could offer
Devon’s $575mn per year by the end of 2021. Savings are a roadmap for other shale producers.
anticipated to come from operational efficien-
“This deal represents the form of shale com-
combination cies, general and administrative expenses and pany consolidation that many across the indus-
with WPX could reduced financing expenses. The companies try have been looking for,” an Enverus mergers
estimated the net present value (NPV) of these and acquisitions analyst, Andrew Dittmar, was
offer a roadmap cost synergies at more than $2bn worth of value quoted in a separate Reuters article as saying. He
cited the complementary acreage in the Permian
over the next five years.
The transaction comes as shale drillers bat-
Basin – the US’ leading shale region – as well as
for other shale tle for survival, with the oil price volatility this the all-stock swap and the little-to-no premium
producers. year compounding ongoing challenges such as paid.
dwindling sources of capital and pressure from “A clear factor in each company’s rationale
investors to yield higher returns. And some is to increase size and maintain market rele-
forecasters are now raising the possibility of oil vance,” Enverus said separately in a note. “The
demand peaking in the coming years, making deal caters to investors’ desire to see a more effi-
the future of the shale and broader oil industries cient, consolidated shale sector. We see Cimarex
all the more uncertain. (XEC) and Parsley (PE) as the top two Permian
Against this backdrop, producers are doing [small and mid]-cap takeout candidates.”
what they can to ensure they have a future, and Some companies in the struggling shale
are well-positioned to benefit from any potential industry will present better acquisition tar-
industry upturn that may yet occur, while also gets than others, but the Devon-WPX merger,
being able to survive new downturns. which is due to close in the first quarter of
“This cycle was driven by [coronavirus] 2021, does bolster expectations that more such
COVID-19, but you never know when the next deals could follow.™

P16 www. NEWSBASE .com Week 39 01•October•2020