HOUSTON — Devon Energy said Wednesday it wants to move into the Eagle Ford Shale through a $6 billion cash deal for assets in the South Texas play, owned by The Woodlands-based GeoSouthern Energy.
The Oklahoma City-based producer said it’s buying assets that produce 53,000 barrels of oil equivalent per day on 82,000 net acres in South Texas, in DeWitt and Lavaca counties, much of it land that must be held by producing oil and gas.The region has at least 1,200 locations that have not been drilled, Devon said.
Devon plans to spend $1.3 billion and drill 230 wells in the Eagle Ford next year, an effort that could boost the company’s daily production to 70,000 barrels in 2014. By 2017, the company expects to be producing at least 135,000 barrels per day.
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The company expects cash flow from the assets to fully fund its development program, which should drive significant production growth and $2.5 billion in free cash flow through 2017, assuming a price of at least $90 per barrel of West Texas Intermediate crude, said Devon’s Chief Operating Officer Dave Hager during a conference call with investors Wednesday.
“As I look back on my years in the industry, I can say with confidence that good fields get better, and big fields get bigger over time,” Hager said. “This is a relatively young play with significant opportunity for improvement.”
The deal is expected to close in the first quarter of next year. Devon shares rose 3.47 percent to $64.94 in early trading Wednesday.
The move into the Eagle Ford is Devon’s first step in transforming the company, said President and CEO John Richels during the conference call.
Richels said next year Devon will look to sell assets “that cannot grow to materiality or cannot deliver significant cash flow.” That includes plans to sell all of its conventional Canadian assets. The “new Devon,” Richels said, will focus on its positions in the Eagle Ford, the Permian Basin, in Canadian heavy oil, the Barnett Shale and the Anadarko Basin.
During its future sell off, the company is planning to cut its natural gas production by 700 million cubic feet per day to 1.7 billion.
“The new Devon is a significant North American oil producer capable of delivering high rates of growth in high-margin oil production,” Richels said.
Devon’s new core region, the Eagle Ford, is expected boost earnings per share 20 percent next year, he said.
Devon is making its Eagle Ford deal as development on the acreage is already in full swing, and it expects to begin growing production at a 25 percent annual compounded growth rate over the next few years. The assets’ risked recoverable resource – most of which is proved reserves – is 400 million barrels of oil equivalent.
The seller, GeoSouthern, plans to continue operating in the Gulf Coast region while its backer, New York private equity giant Blackstone Group, is exiting its stake in the company, Devon said.
Richels said the company would give more details about its new capital focus during the Feb. 19 fourth-quarter conference call.
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