Devon, Crosstex To Combine US Assets To Form New Midstream Business

(RTTNews) - Independent oil and gas producer Devon Energy Corp. (DVN) and Crosstex Energy Inc. (XTXI) agreed Monday to substantially combine all of their midstream businesses in the U.S. to form a new midstream business that will be named prior to closure of the deal. The boards of directors of both the companies have unanimously approved the deal.

"The combined company's midstream assets and expertise greatly accelerate the value proposition of Devon's previously announced standalone master limited partnership in a manner that is highly accretive to our shareholders. Additionally, this transaction provides Devon a market-based valuation for these assets on a go forward basis," Devon's President and CEO John Richels said in a statement.

Devon said that the new business will consist of two publicly traded entities: the Master Limited Partnership and a General Partner entity. The new entity is expected to have adjusted EBITDA of about $700 million in 2014, before synergies. The deal is also expected to be immediately accretive to both Crosstex and Devon.

The deal will combine the extensive midstream systems of both companies, including gathering and transportation pipelines, and processing, fractionation and logistics assets.

The midstream assets being combined are located in many of North America's premier oil and gas regions, including the Barnett Shale, Permian Basin, Cana and Arkoma Woodford, Eagle Ford, Haynesville, Gulf Coast, Utica and Marcellus.

The deal will see the combinations of Devon's large Texas and Oklahoma midstream platform with Crosstex's positions in the Barnett Shale, Permian Basin, Eagle Ford, Haynesville, Gulf Coast, Utica and Marcellus.

The newly formed entity will have about 7,300 miles of gathering and transportation pipelines, 13 processing plants with 3.3 billion cubic feet per day or Bcf/day, of net processing capacity, 6 fractionators with 165 million barrels of oil per day or Mbbl/day, of net fractionation capacity, as well as barge and rail terminals, product storage facilities, brine disposal wells and an extensive crude oil trucking fleet.

"The integration of Devon's midstream assets with Crosstex provides the New Company with greater operating leverage and strong sponsorship from a leading North American exploration and production company," said Barry Davis, Crosstex's President and CEO.

Upon closing of the deal, the pro forma ownership of the new General Partner entity will be about 70 percent Devon Energy, 30 percent current Crosstex Energy public stockholders.

Meanwhile, the pro forma ownership of the Master Limited Partnership entity will be about 53 percent Devon Energy, 40 percent current Crosstex Energy, L.P. public unitholders, and 7 percent the new General Partner entity.

Under the terms of the deal, Devon will contribute its equity interest in a newly formed Devon subsidiary and $100 million in cash. The Master Limited Partnership and the General Partner will each own 50 percent of the Devon subsidiary. Meanwhile, Crosstex holders will receive one unit in the general partner for each Crosstex share as well as a one-time cash payment of about $2.00 per share. Devon contributed assets are valued at an estimated $4.8 billion.

The closure of the deal, expected in the first quarter of 2014, is subject to approval by the stockholders of Crosstex Energy and customary regulatory approvals.

Shareholders representing about 22 percent of Crosstex's outstanding shares, including ts largest stockholder, Blackstone/GSO Capital, as well as certain members of management and directors, have agreed to vote their combined interest in favor of the proposed deal.

The companies said Davis will be president and CEO of the new company, while Richels be the chairman. The board of both entities will have nine members, which will each include five members nominated by Devon. The executive management team of the new company will consist of senior officers from both Devon and Crosstex.

The new company will be headquartered in Dallas, Texas, with a continued employee presence in Oklahoma City. Devon, with its strong upstream development portfolio, will be the new company's largest customer.

In Monday's regular trading session, DVN is currently trading at $65.26, up $2.06 or 3.25% on a volume of 3.33 million shares, and XTXI is trading at $30.78, up $10.18 or 49.42% on a volume of 1.22 million shares.