Devon Energy acquires Grayson Mill Energy's Williston Basin business for $5 billion

Devon Energy announced a definitive purchase agreement to acquire the Williston Basin business of Grayson Mill Energy for US $5 billion.

The transaction includes $3.25 billion in cash and $1.75 billion in stock to the sellers. Subject to customary terms and conditions, including various purchase price adjustments, the deal is expected to close by the end of the third quarter of 2024, with an effective date of June 1, 2024.

“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,” Rick Muncrief, President and CEO of Devon Energy, stated in a press statement. “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.”

Transaction highlights

The transaction is immediately accretive to Devon’s key per-share financial measures, including earnings, cash flow, free cash flow, and net asset value. The assets were acquired at less than four times EBITDAX, with an estimated free cash flow yield of 15% at an $80 WTI oil price.

The acquisition adds a high-margin production mix, positioning Devon as one of the largest oil producers in the U.S. Pro forma for the transaction. The company estimates its oil production to average 375,000 barrels per day, with total production reaching an average of 765,000 oil-equivalent barrels (BOE) per day across its diversified portfolio of assets.

This deal significantly expands Devon’s position in the Williston Basin with the addition of 307,000 net acres (70% working interest). Production from the acquired properties is expected to be maintained at approximately 100,000 BOE per day (55$ oil) in 2025. With enhanced scale in the basin, Devon expects to realise up to $50 million in average annual cash flow savings from operating efficiencies and marketing synergies.

The acquisition also adds 500 gross locations and 300 high-quality refrac candidates that effectively compete for capital in the company’s portfolio. On a pro forma basis, Devon will possess an inventory life of up to 10 years in the Williston Basin at a constant development pace of three operated rigs.

The acquired business generates peer-leading operating margins in the Williston Basin, benefiting from midstream infrastructure ownership in 950 miles of gathering systems, an extensive network of disposal wells, and crude storage terminals. This midstream ownership creates a margin uplift of more than $125 million of EBITDAX annually and provides marketing optionality to capture higher pricing through access points to multiple end-use markets.

Due to the accretive nature of this transaction to free cash flow, Devon’s board of directors has expanded its share-repurchase authorisation by 67% to $5 billion through mid-2026. The company also expects this acquisition to positively impact its dividend payout in 2025 and beyond.

Strong financial position maintained

The transaction structure supports Devon in retaining its strong investment-grade credit ratings, with a projected net debt-to-EBITDAX ratio of approximately 1.0 times upon closing. The company plans to enhance its financial strength by allocating up to 30 percent of its annual free cash flow towards reducing $2.5 billion of debt over the next two years.

Devon will fund the $5 billion acquisition with $3.25 billion in cash and the issuance of 37 million shares of common stock valued at $1.75 billion. The company plans to finance the cash portion of the purchase price through a combination of cash on hand and debt.