Devon Energy Corp. is scaling up in the Eagle Ford Shale with a $1.8 billion cash deal to buy privately held Validus Energy announced early on Aug. 9.
Validus is a pure play with a position that includes 42,000 net acres in the core of the Karnes County oil window in South Texas with average production of 35,000 boe/d. The acreage is adjacent to Devon’s existing leasehold in the Eagle Ford Shale.
The addition of Validus almost doubles Devon’s current Eagle Ford footprint. The company’s pro forma position of 82,000 net acres will produce an estimated 73,000 boe/d this year—well above the 38,000 boe/d that Devon recently reported for the basin during the second quarter.
“Color us a bit surprised,” said Tudor Pickering Holt & Co. analyst Matt Portillo in a note to investors.
The added scale poises Devon to realize $50 million in average annual cash flow savings from capital efficiencies, operating improvements, and marketing synergies, while keeping leverage relatively unchanged at current strip prices, management said.
A cash flow yield of 30% at strip throughout the next year would make the transaction accretive enough that Devon may increase its outlook for its variable dividend by up to 10% and accelerate the firm’s ability to close out its existing $2 billion share buyback program.
Validus’ inventory, which includes 350 drilling locations, adds ample runway of “highly economic inventory that is complementary to our existing footprint in the Eagle Ford,” Devon CEO Rick Muncrief said in a news release.
It’s another “sensible” deal for Devon, said analyst Phillips Johnston at Capital One Securities (COS).
Devon stock gained almost 2% in pre-market open trading, which priced its shares at $58.65 each.
Quick pricing analysis at COS suggests Devon is paying about $51,000 per flowing boe—below the firm’s current multiple of $69,000/flowing boe, Johnston said. Moreover, the Validus acreage has a higher oil cut of 70% relative to Devon’s standalone rate close to 50%.
This transaction is Devon’s second sizable deal in recent months.
The Oklahoma City-based producer spent some $865 million in a June acquisition of RimRock Oil and Gas’ position in the Bakken. The Validus deal is roughly twice the size of the previous purchase, but it has similar features—a contiguous position and immediate accretion.
|Q2 Production (boe/d)||38,000||35,000||73,000|
|Effective date||June 1|
|Closing||End of Q3 2022|
Validus Energy is financially backed by equity commitments from Pontem Energy Capital, other institutions, and private investors. Led by Skye Callantine as president and CEO, the Denver-based company acquired Ovintiv Inc.’s Eagle Ford Shale asset for $880 million in 2021.
The founder of Felix Energy, Callantine previously built and sold roughly $7 billion of assets over an 8-year period under the Felix Energy platform.
Ovintiv had purchased its Eagle Ford position in 2014. Known as Encana Corp. at the time, the company had paid roughly $3.1 billion for 45,500 net acres within the Eagle Ford Shale in Karnes, Wilson and Atascosa counties, Texas, from Freeport-McMoRan.
2022-11-30 - Shale royalty Bryan Sheffield and Dick Stoneburner shift their attention to Australia.
2022-10-31 - Pioneer Natural Resources told investors it will reshuffle its drilling portfolio next year to target wells with potentially higher returns, a move to boost lagging productivity levels. Chevron and Exxon Mobil also offered cautious notes on their Permian oil and gas volumes.
2022-10-18 - Evercore’s West forecasts Schlumberger and Halliburton will top Wall Street consensus estimates, with Baker Hughes delivering in-line results after pre-announcing headwinds from currency translation and LNG facilities that delayed service work.
2022-10-10 - “There is downward pressure due to a slowing economy and inflation pressure is reducing demand,” said one executive who participated in the survey of oil firms operating in Kansas, Colorado, Nebraska, Oklahoma, Wyoming and parts of New Mexico.
2022-10-28 - Baker Hughes had bought back $1.2 billion in Class A shares under its current authorization as of Sept. 30.