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.
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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.
Also on FuelFix:
Top 10 deals of the US energy boom
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10. $9.2 billion
In March 2011, Berkshire Hathaway announced plans to buy Wickliffe, Ohio-based specialty chemicals company Lubrizol in an all-cash deal.
[photo: Warren Buffet, chairman and CEO of Berkshire Hathaway]
9. $9.3 billion
In June 2011, Dallas-based Energy Transfer Equity announced plans to buy Houston’s Southern Union Co. in a stock deal, creating one of the largest natural gas pipeline companies in U.S.
[photo: The Travis Tower, or 1300 Main, in downtown Houston was purchased by Dallas-based Energy Transfer Partners in August 2011.]
8. $10.2 billion
In April 2011, Exelon Corp. agreed to buy Constellation Energy Group Inc. in a stock deal led by CEO John
Rowe, then the longest-serving utility CEO in the country.
[photo: Then- Exelon Corp. CEO John Rowe]
Plains Exploration and Productio
7. $10.2 billion
In December 2012, global mining powerhouse Freeport-McMoRan Copper & Gold Inc. announced plans to buy Plains Exploration and Production Co. in a cash and stock deal, making a big and risky jump into the oil and gas business.
[photo: A Plains Exploration and Production Co. worker retrieves data from a well in the Inglewood oil field in Los Angeles.]
Isaac Brekken / Getty Images for National Clean
6. $10.4 billion
In May 2013, Berkshire Hathaway’s MidAmerican Energy utility announced plans to buy Nevada electric and natural gas company NV Energy in a cash deal that expanded the footprint of Warren Buffet's company in the energy sector.
[photo: NV Energy President and CEO Michael Yackira speaks during the National Clean Energy Summit 6.0 at the Mandalay Bay Convention Center on August 13, 2013 in Las Vegas, Nevada.]
TOM REEL / San Antonio Express-News
5. $12.3 billion
In February 2010, oil field services giant Schlumberger announced plans to buy Houston-based drill bits maker Smith International in an all-stock merger.
[photo: In 2012, Robert Drummond, President of Schlumberger North America, (left) talks about his company as Jeremy Aumaugher, South Division Operations Manager,listens.]
Jake Lacey / Jake Lacey
4. $14.9 billion
In July 2011, BHP Billiton announced plans to buy Petrohawk Energy Corp. in an all-cash deal that made the Australian company a bigger player in U.S. onshore energy production.
[photo: A Petrohawk Energy Co. drilling site at the Eagle Ford Shale in McMullen County, Texas.]
Nell Redmond / AP
3. $25.5 billion
In January 2011, Duke Energy Corp. announced plans to buy its North Carolina rival Progress Energy Inc. in a stock deal that would create one of the nation's largest utilities.
[photo: Duke Energy's Charlotte, N.C. corporate headquarters in Feb. 1, 2006]
2. $37.6 billion
In October 2011, Kinder Morgan announced plans to buy El Paso Corp., a Houston-based natural gas producer and pipeline owner in a cash and stock deal. The acquisition encountered regulatory challenges, but eventually created the nation's largest network of pipelines.
[photo: Rockie Express Pipeline]
Matt Nager / Bloomberg
1. $41.4 billion
In December 2009, Exxon Mobil announced plans to buy Fort Worth, Texas-based XTO Energy in a stock deal, making a major bet on the future of natural gas. Exxon Mobil is now the largest producer of natural gas in North America.
[photo: A flag flies otuside the headquarters building of XTO Energy Inc. in Fort Worth, Texas, U.S., on Monday, Dec. 14, 2009.]