Released July 12, 2024 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The consolidation among oil and gas producers continued Monday after Devon Energy Corporation (NYSE:DVN) (Oklahoma City, Oklahoma) said it was acquiring Grayson Mill Energy (Houston, Texas) in a stock and cash deal valued at $5 billion. The deal came only weeks after the Financial Times (London, England) reported Devon was beaten by ConocoPhillips (NYSE:COP) (Houston)
in the competition to acquire Marathon Oil Corporation (NYSE:MRO) (Houston).
The Devon-Grayson Mill Energy and Conoco-Marathon tie-ups continued a wave of mergers and acquisitions in the Oil Patch. Last fall, Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) (Spring, Texas) announced plans to acquire Pioneer Natural Resources Company (Irving, Texas) for $60 billion and Chevron Corporation (NYSE:CVX) (San Ramon, California) said it would purchase Hess Corporation (NYSE:HES) (New York, New York) for $53 billion. Earlier this year, APA Corporation (NASDAQ:APA) (Houston) acquired Callon Petroleum (Houston) in a stock deal. Occidental Petroleum Corporation (NYSE:OXY) (Houston) and Diamondback Energy Incorporated (NASDAQ:FANG) (Midland, Texas) also announced acquisitions in recent months.
Industry consolidation comes as global demand for crude oil remains strong, despite expressed concerns over global warming.
Beyond continuing industry consolidation, the Devon-Grayson Mill Energy deal also highlighted another trend: "asset monetization," where private equity (PE) firms sell oil and gas assets after owning them for five to eight years. Grayson Mill Energy's corporate parent is PE firm EnCap Investments L.P. (Houston), which acquired the producer in 2016. Last month, EnCap sold another producer it owned, XCL Resources, which operates in Utah's Unita Basin. EnCap first bought XCL in 2018. Also last month, EnCap sold about $1.9 billion of Permian Basin assets to Matador Resources Company (NYSE:MTDR) (Dallas, Texas). The PE firm first acquired those assets in 2017.
Speaking to CNBC earlier this year, Conoco Chief Executive Ryan Lance said consolidation was "the right thing to be doing for our industry. Our industry needs to consolidate. There's too many players. Scale matters, diversity matters in the business."
In its July 8 acquisition announcement, Devon President and Chief Executive Rick Muncrief said, "The acquisition of Grayson Mill is an excellent strategic fit for Devon that allows us to efficiently expand our oil production and operating scale while capturing a meaningful runway of highly economic drilling inventory. This transaction also creates immediate value within our financial framework by delivering sustainable accretion to earnings and free cash flow that will result in higher distributions to shareholders over time."
The acquisition deepens Devon presence in the Williston Basin, which lies mainly in North Dakota and Wyoming but also stretches into South Dakota, Saskatchewan and Manitoba. The deal will increase Devon's oil production by about 100,000 barrels per day (BBL/d), to about 375,000 BBL/d. Devon's oil production was about 155,000 BBL/d in 2020, company officials told investors July 8.
In summarizing the transaction, Devon said it would:
Commenting on the Devon deal, Andrew Dittmar, principal analyst at Enverus Intelligence Research (Austin, Texas), said, "The deal continues a trend of buyers looking beyond the Permian to find buyable opportunities of scale in an increasingly consolidated market. The deal fits Devon's generally conservative outlook for M&A, focusing on deals where value is largely supported by current production versus allocating a higher portion of deal value to undeveloped inventory. In this deal, it appears 70-80% of the total deal value Devon is paying for Grayson Mill is for existing production with the remainder going to undeveloped inventory."
He added, "This deal makes the Williston a key operating region for Devon, where they might otherwise have been a seller if they couldn't find a scalable opportunity to increase their footprint. The Eagle Ford and MidContinent now stand out as some of the least consolidated plays with the most remaining private opportunities."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
The Devon-Grayson Mill Energy and Conoco-Marathon tie-ups continued a wave of mergers and acquisitions in the Oil Patch. Last fall, Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) (Spring, Texas) announced plans to acquire Pioneer Natural Resources Company (Irving, Texas) for $60 billion and Chevron Corporation (NYSE:CVX) (San Ramon, California) said it would purchase Hess Corporation (NYSE:HES) (New York, New York) for $53 billion. Earlier this year, APA Corporation (NASDAQ:APA) (Houston) acquired Callon Petroleum (Houston) in a stock deal. Occidental Petroleum Corporation (NYSE:OXY) (Houston) and Diamondback Energy Incorporated (NASDAQ:FANG) (Midland, Texas) also announced acquisitions in recent months.
Industry consolidation comes as global demand for crude oil remains strong, despite expressed concerns over global warming.
Beyond continuing industry consolidation, the Devon-Grayson Mill Energy deal also highlighted another trend: "asset monetization," where private equity (PE) firms sell oil and gas assets after owning them for five to eight years. Grayson Mill Energy's corporate parent is PE firm EnCap Investments L.P. (Houston), which acquired the producer in 2016. Last month, EnCap sold another producer it owned, XCL Resources, which operates in Utah's Unita Basin. EnCap first bought XCL in 2018. Also last month, EnCap sold about $1.9 billion of Permian Basin assets to Matador Resources Company (NYSE:MTDR) (Dallas, Texas). The PE firm first acquired those assets in 2017.
Speaking to CNBC earlier this year, Conoco Chief Executive Ryan Lance said consolidation was "the right thing to be doing for our industry. Our industry needs to consolidate. There's too many players. Scale matters, diversity matters in the business."
In its July 8 acquisition announcement, Devon President and Chief Executive Rick Muncrief said, "The acquisition of Grayson Mill is an excellent strategic fit for Devon that allows us to efficiently expand our oil production and operating scale while capturing a meaningful runway of highly economic drilling inventory. This transaction also creates immediate value within our financial framework by delivering sustainable accretion to earnings and free cash flow that will result in higher distributions to shareholders over time."
The acquisition deepens Devon presence in the Williston Basin, which lies mainly in North Dakota and Wyoming but also stretches into South Dakota, Saskatchewan and Manitoba. The deal will increase Devon's oil production by about 100,000 barrels per day (BBL/d), to about 375,000 BBL/d. Devon's oil production was about 155,000 BBL/d in 2020, company officials told investors July 8.
In summarizing the transaction, Devon said it would:
- Immediately boost key financial metrics, including earnings, cash flow, free cash flow and net asset value.
- Enhance the scale and scope of its operations, boosting oil production to about 375,000 barrels of oil per day (BBL/d). On an oil-equivalent basis, the deal would plump Devon's overall production to about 765,000 barrels of oil equivalent (BOE) per day. The deal will triple Devon's in-basin production while significantly deepening its inventory.
- Transform Devon's Williston Basin business by adding about 307,000 net acres of land. Greater scale could lead to $50 million in cash flow savings from operating efficiencies and marketing synergies.
- Enhance its midstream presence by adding about 950 miles of gathering systems, an extensive network of disposal wells and crude storage terminals.
Commenting on the Devon deal, Andrew Dittmar, principal analyst at Enverus Intelligence Research (Austin, Texas), said, "The deal continues a trend of buyers looking beyond the Permian to find buyable opportunities of scale in an increasingly consolidated market. The deal fits Devon's generally conservative outlook for M&A, focusing on deals where value is largely supported by current production versus allocating a higher portion of deal value to undeveloped inventory. In this deal, it appears 70-80% of the total deal value Devon is paying for Grayson Mill is for existing production with the remainder going to undeveloped inventory."
He added, "This deal makes the Williston a key operating region for Devon, where they might otherwise have been a seller if they couldn't find a scalable opportunity to increase their footprint. The Eagle Ford and MidContinent now stand out as some of the least consolidated plays with the most remaining private opportunities."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
