In what’s being billed as a merger of equals, Devon Energy
With a combined capital structure involving $6 billion in debt against $6 billion in equity, and daily production volumes of roughly 525,000 barrels per day of oil (and natural gas equivalents), the new Devon will be bigger than Apache Corp
The deal, first rumored over the weekend, comes on the heels of Chevron’s
More consolidation has to happen, because without it companies will keep shrinking and disappear. With oil prices too low to incentivize new investment, companies have all but stopped drilling and fracking new wells. Devon cut Capex early in the down cycle, and has watched production volumes drop 40% since 2018. The flip side is that when you stop drilling suddenly cash begins to build up. Devon’s cash pile has grown to $1.5 billion.
Devon and WPX are a good match, with overlapping acreage holdings in key oil basins that will enable the companies to find upwards of $500 million in combination synergies, including layoffs. According to analysts at Tudor, Pickering & Holt, the new Devon will have enough low-cost oil prospects to target that it will be able to break even at an oil price as low as $33/bbl. The company is forecasting production growth of no more than 5% a year, while reinvesting no more than 80% of cash flow.
The prize assets of WPX involve several hundred thousand acres in the Permian basin of west Texas and New Mexico. To build that Permian position WPX, led by CEO Rick Muncrief (formerly of Continental Resources
The two companies are among the most attractively valued E&Ps; according to Credit Suisse
Enshrining its dedicating to fiscal discipline, the new Devon announced a “fixed plus variable” dividend, featuring an 11 cent per share base plus variable payments promised for quarters in which the company has accumulated more than $500 million in cash and doesn’t need to use it to pay down debt. We’ll see if that discipline holds if and when oil prices get back above $50 some day.
With this deal Devon, long a cross-town rival of both Harold Hamm’s Continental Resources as well as Chesapeake Energy
The company will consolidate WPX’s Tulsa headquarters into Oklahoma City at Devon Tower, at 844 feet the talled building in Oklahoma. Dave Hager, Devon’s CEO will be chairman of the new company, which will be run by Muncrief as CEO. Jeff Ritenour of Devon will be CFO, while WPX’s Clay Gaspar will be COO.
There will be more such mergers to come. Analysts see Marathon Oil, ConocoPhillips