There’s been a frenetic scramble among oil and gas producers through the early 2020s to acquire top-tier acreage and production assets they think they will need to survive and thrive. Some of those acquisitions are still being done through smaller deals such as acreage swaps, but the expansion mode of choice for most has been big-time M&A, which in a single multibillion-dollar deal can add years to a company’s inventory life or perhaps give it a stronger foothold in a key production region or two. In today’s RBN blog, we discuss Devon Energy’s recently announced $5 billion acquisition of Grayson Mill Energy, yet another private-equity-backed E&P cashing in on the smart moves it has been making.
Over the past few years, executives at large U.S. oil and gas producers have put a lot of effort into increasing their company’s scale, improving cost efficiency and boosting shareholder returns. For many — almost all, it seems — that work resulted in either acquiring another E&P or becoming the acquiree. A comprehensive list would fill half a blog, but prime, 10- or 11-figure examples include Chevron buying Hess Corp., Occidental Petroleum purchasing CrownRock, Chesapeake Energy acquiring Southwestern Energy, and Diamondback Energy snapping up Endeavor Energy Resources. (And don’t forget the case of Permian pure-play Pioneer Natural Resources, which in 2021 bought Parsley Energy for $4.5 billion and DoublePoint Energy for $6.4 billion, only to be acquired itself by ExxonMobil in May for a cool $60 billion.)
Devon Energy — the eighth-largest U.S. oil and gas producer by market capitalization (seventh if you exclude Hess, whose deal with Chevron hasn’t closed yet) — has been busy too. First it was in divestment mode, selling its Canadian assets to Canadian Natural Resources for $2.8 billion in 2019 and following that up in 2020 with the sale of its Barnett Shale assets to Banpu Kalnin Ventures for $320 million. Then came an expansion round. In January 2021, Devon and WPX Energy closed on an all-stock “merger of equals” valued at $5.8 billion that increased Devon’s holdings in the all-important Delaware Basin in West Texas and southeastern New Mexico and also gave it a foothold in the Williston Basin (aka the Bakken) in western North Dakota. The merger propelled Devon toward the front of the pack: Before the merger, Devon and WPX ranked 11th and 12th in production, respectively, among unconventional oil producers in the U.S., but after the transaction Devon ranked fourth, behind only Occidental, ConocoPhillips and EOG Resources.
Devon’s push to gain scale didn’t end there. As we discussed a couple of years ago in Spread Your Wings, the company in 2022 embarked on a “portfolio renewal” effort that included the $865 million acquisition of RimRock Oil & Gas, the $1.8 billion purchase of Validus Energy, and a number of acreage swaps in the Delaware. The RimRock deal gave Devon about 38,000 net acres, 15 Mboe/d of production (78% of it oil) and more than 100 highly economic undrilled locations in North Dakota’s Dunn County — the acreage being contiguous to Devon’s then 45,000 acres and 45 Mboe/d of production (67% oil) on the Fort Berthold Indian reservation. The Validus transaction, in turn, roughly doubled Devon’s acreage and production in the Eagle Ford (to about 82,000 net acres and 83 Mboe/d when the deal closed) and increased the oil cut of its South Texas production from 49% to 60%.
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