In a $2.56 billion all-stock merger, Oklahoma City-based Devon Energy Corp. has acquired Tulsa’s WPX Energy Inc., a move that will expand Devon’s presence in the Delaware portion of the Permian Basin across West Texas and New Mexico.
The deal values WPX at $4.56 a share, just 2.7% higher than the stock’s closing price on Friday.
Devon’s deal is the second major merger in the troubled oil and gas industry following the price shock in April when crude oil briefly traded in negative territory, and points to growing consolidation in the sector.
WPX shareholders will receive 0.5165 shares of Devon common stock for each share of WPX common stock owned.
Devon said the transaction will create one of the largest unconventional oil producers in the U.S, with daily production of 277,000 barrels of oil. The portfolio will include 400,000 net acres in the Delaware Basin and account for nearly 60% of the combined company’s total oil production.
The consolidated Delaware footprint provides a multi-decade inventory of high-return opportunities at combined activity levels of 17 drilling rigs. The balance of the portfolio will be diversified across high-margin, high-return resource plays in the Anadarko Basin, Williston Basin, Eagle Ford Shale and Powder River Basin.
Under the terms of the agreement, WPX shareholders will receive a fixed exchange ratio of 0.5165 shares of Devon common stock for each share of WPX common stock owned. The exchange ratio, together with closing prices for Devon and WPX on Sept. 25, 2020, results in an enterprise value for the combined entity of approximately $12 billion. Upon completion of the transaction, Devon shareholders will own approximately 57 percent of the combined company and WPX shareholders will own approximately 43 percent of the combined company on a fully diluted basis.
The transaction, which is expected to close in the first quarter of 2021, has been unanimously approved by the boards of directors of both companies. Funds managed by EnCap Investments L.P. own approximately 27 percent of the outstanding shares of WPX and have entered into a support agreement to vote in favor of the transaction.
“This merger is a transformational event for Devon and WPX as we unite our complementary assets, operating capabilities and proven management teams to maximize our business in today’s environment, while positioning our combined company to create value for years to come,” said Dave Hager, Devon’s president and CEO.
“This merger-of-equals strengthens our confidence that we will achieve all of our five-year targets outlined in late 2019,” said Rick Muncrief, WPX’s chairman and CEO.
Following the merger, the board of directors will consist of 12 members, 7 directors from Devon and 5 from WPX including the lead independent director. Dave Hager will be appointed executive chairman of the board, and Rick Muncrief will be named president and CEO.
The combined company’s executive team will include Jeff Ritenour as executive vice president and chief financial officer, Clay Gaspar as executive vice president and chief operating officer, David Harris as executive vice president and chief corporate development officer, Dennis Cameron as executive vice president and general counsel, and Tana Cashion as senior vice president of human resources. The combined company will be headquartered in Oklahoma City.
The newly combined company will also have liquidity of $1.7 billion cash on hand and $3 billion in undrawn capacity on its credit facility expected at closing.
Cost savings from initiatives underway in the second half of 2020 and synergies resulting from the merger are expected to drive $575 million in annual cash flow improvements by year-end 2021. These cost improvements are expected to be attained through operational efficiencies, general and administrative savings and reduced financing expense. The net present value of these cost synergies over the next 5 years equates to more than $2 billion of value. The all-stock transaction structure allows shareholders of both Devon and WPX to benefit from the cost synergies and significant upside potential of the combined company.
Click here to read details of the announcement.
Source: BusinessWire
