Devon Energy Corporation (NYSE:DVN) shares are trading lower today. The company disclosed a definitive agreement to acquire Grayson Mill Energy's Williston Basin business for $5 billion.
The acquisition price comprises $3.25 billion in cash and $1.75 billion in stock. The acquisition includes 500 gross locations and 300 high-quality refrac candidates, extending Devon's inventory life in the basin to up to 10 years with three operated rigs.
The deal, subject to customary conditions and price adjustments, is expected to close by the end of the third quarter of 2024 and become effective on June 1, 2024.
Outlook: The transaction is anticipated to immediately accretive to Devon's key per-share financial metrics, including earnings, cash flow, free cash flow, and net asset value.
Post-deal closure, the company expects oil production to average 375,000 barrels of oil per day, with total production averaging 765,000 barrels of oil equivalent (Boe) daily across its diversified asset portfolio.
The transaction significantly enhances Devon's position in the Williston Basin, adding 307,000 net acres (70% working interest).
Production from these properties is expected to remain around 100,000 Boe per day (55% oil) in 2025.
With increased scale, Devon anticipates up to $50 million in annual cash flow savings from operational efficiencies and marketing synergies.
The transaction supports Devon's strong investment-grade credit ratings, targeting a net debt-to-EBITDAX ratio of about 1.0 times at closing. Devon plans to allocate up to 30% of annual free cash flow to reduce $2.5 billion in debt over the next two years.
Share Repurchase & Dividend: Given the transaction's positive impact on free cash flow, Devon's board of directors has increased its share repurchase authorization by 67% to $5 billion through mid-year 2026.
Additionally, the company anticipates the acquisition to enhance its dividend payout starting in 2025 and beyond.
As of the end of the first quarter of FY24, Devon's cash, cash equivalents, and restricted cash were $1.15 billion.
Devon anticipates reporting results for the second quarter of 2024 on August 6, 2024.
Investors can gain exposure to the stock via Invesco Energy Exploration & Production ETF (NYSE:PXE) and Invesco S&P 500 Equal Weight Energy ETF (NYSE:RSPG).
Price Action: DVN shares are down 2.78% at $45.72 at the last check Monday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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