Devon Energy To Buy GeoSouthern Energy's Eagle Ford Assets For $6 Bln

(RTTNews) - Oil and gas producer Devon Energy Corp. (DVN) said Wednesday that it has agreed to buy privately-held Texas shale oil driller GeoSouthern Energy Corp.'s assets in the Eagle Ford oil play for $6 billion in cash. The deal is expected to help bolster Devon Energy's position in the Eagle Ford shale formation in South Texas.

The acquired assets include current production of 53,000 barrels of oil equivalent or BOE per day, and 82,000 net acres with at least 1,200 undrilled locations. The risked recoverable resource is estimated at 400 million barrels of oil equivalent, the majority of which is proved reserves. The transaction is expected to close in the first quarter of 2014.

John Richels, Devon Energy's President and Chief Executive Officer said, "With this transaction, we have secured a premier acreage position in the very best part of the world-class Eagle Ford oil play. This acquisition enhances our already strong North American portfolio by adding another low-risk, light oil asset that provides outstanding well economics and self-funded growth."

Oklahoma-based Devon Energy noted that the acquired Eagle Ford acreage is located in DeWitt and Lavaca counties in Texas and is largely contiguous and derisked, with most of the position held by production. The company expects the acquired assets to grow at a compound annual growth rate of 25 percent over the next several years, reaching a peak production rate of about 140,000 BOE per day.

Further, Devon Energy said that the development drilling program is immediately self-funding and expected to generate annual free cash flow of about $800 million beginning in 2015 and growing thereafter.

GeoSouthern Energy is one of the first companies to successfully execute in the Eagle Ford oil play and has focused on the Black Hawk field. One of GeoSouthern's investors is private equity giant Blackstone Group, L.P. (BX), which helped the company secure $1 billion in financing in February 2012 to develop its holdings in Black Hawk.

Following the completion of the transaction, GeoSouthern will continue to operate all of its other assets in the Texas Gulf Coast region and other areas. Meanwhile, Blackstone Group will exit its stake in the company through this transaction.

Devon Energy said it will fund the acquisition with a combination of cash on hand and borrowings and expects to repay the borrowings with free cash flow as well as proceeds from the sale of non-core assets. The company expects the acquisition to be immediately accretive to cash flow per debt-adjusted share.

Devon Energy was co-founded in 1971 by Chairman Larry Nichols and went public in 1988.

The company helped create the U.S. shale boom when it acquired Mitchell Energy & Development Corp. for about $3.5 billion in 2002. Mitchell was the first company to successfully use hydraulic fracturing, or fracking, to break open dense shale formations, while Devon Energy is said to be the first company to introduce horizontal drilling.

Devon Energy, which has a market capitalization of more than $26 billion, has focused onshore in the U.S. and Canada. The company has nearly doubled its onshore North American oil production since 2008 and produces about 2.6 billion cubic feet of natural gas a day, representing more than 3 percent of all the gas consumed in North America.

In late October, Devon Energy 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. Devon Energy, with its strong upstream development portfolio, will be the new company's largest customer.

In Wednesday's regular session, DVN is trading at $64.94, up $2.17 or 3.47 percent on a volume of 969,400 shares.