(Adds background, details about GeoSouthern CEO, updates stock
By Michael Erman
Nov 20 Devon Energy Corp will buy
oil-producing assets in Texas for $6 billion and plans to sell
or otherwise monetize some of its natural gas-heavy holdings in
response to investor criticism about its lack of exposure to
more profitable crude.
The Oklahoma City-based company said it will buy privately
held GeoSouthern Energy Corp's core assets in the Eagle Ford
shale region of south Texas for $6 billion in cash, as it seeks
to revive investor interest in its shares.
Oil and gas deals have been slow in the United States in
2013, compared to previous years when companies like Exxon Mobil
, Royal Dutch Shell and BHP Billiton Ltd
poured billions into emerging shale assets.
Investors had worried that Devon did not have a position in
some of the hottest U.S. shale formations, like the Eagle Ford.
Devon Chief Executive John Richels said after the
GeoSouthern deal was announced that Devon was looking to sell or
otherwise extract value from its conventional natural gas assets
in Canada and other non-core assets in the U.S.
"The new Devon is a significant North American oil producer
capable of delivering high rates of growth in high-margin oil
production while generating free cash flow," Richels said on a
conference call with investors.
Shares of Devon Energy were barely lower in Wednesday
afternoon trading, down five cents to $62.72.
The company said the assets it was buying currently produce
53,000 barrels of oil equivalent (BOE) per day over 82,000 net
That's expected to grow at a compound annual rate of 25
percent over the next several years, reaching peak production of
about 140,000 BOE per day, the company said. The GeoSouthern
assets hold estimated risked recoverable resources of 400
million barrels of oil equivalent, most of which is proved
reserves, it said.
Private equity firm Blackstone Group, an investor in
GeoSouthern, will sell its stake through the Devon deal, raking
in about $1.54 billion, Blackstone said.
GeoSouthern CEO George Bishop also holds an ownership stake
in the company, but it is not currently known how much he will
make from the sale.
Devon has been working for years to transform itself. In
2009, the company started selling international and offshore
assets to focus on its North American operations.
That strategy left the company with a big exposure to
lower-priced natural gas and natural gas liquids, causing the
company's shares to underperform over the past two years.
Richels said that after exiting the non-core assets, Devon
would focus on five key areas - the Eagle Ford shale, the
Permian basin, Canadian heavy oil, the Barnett Shale, and the
Anadarko basin - as well as two other emerging oil plays.
Through the asset monetization program, the company hopes to
exit assets holding around 30 percent of Devon's natural gas, 12
percent of its natural gas liquids and 8 percent of its oil.
Through the GeoSouthern deal, Richels said the company was
buying light-oil rich acreage in the best part of the Eagle Ford
formation at a discount to the stock market valuation of similar
"The deal makes them more of an oil company and grows their
production right away. A lot of people still have the idea that
they are too much of a gas company and this deal will change
that right away," said Mike Breard, an analyst at Hodges Capital
Management in Dallas.
Morgan Stanley and Goldman Sachs were financial advisors to
Devon in the GeoSouthern deal. Jefferies & Co advised
Last month, Devon agreed to combine most of its U.S.
pipeline and processing businesses with those owned by Crosstex
Energy Inc and Crosstex Energy LP and form a
new infrastructure company.
(Additional reporting by Anna Driver in Houston; Editing by
Nick Zieminski, Bernadette Baum and Tim Dobbyn)