(Reuters) - Devon Energy Corp DVN.N, a U.S. oil exploration and production company, is in discussions to acquire smaller peer Felix Energy LLC for around $2 billion, including debt, according to sources familiar with the matter.
If successful, the deal could mark a thaw for mergers and acquisitions in the U.S. oil patch, which has been roiled by a supply glut. It would also represent a bet by Devon that crude oil prices will recover from their current $40 per barrel lows to around $65 sooner rather than later, the sources said.
The plummeting oil prices have depleted the cash reserves of several U.S. oil and gas companies and have put them under pressure to raise money. The weak market has also weighed on their valuations, making them reluctant to sell themselves.
For Felix, however, a deal would highlight a desire on the part of its majority owner, buyout firm EnCap Investments LP, to return money to its private equity investors in what has been a challenging year for such energy-focused funds.
EnCap has received a cash-and-stock offer for Felix from Devon, the sources said this week. It has also sought other potential buyers, and there is no certainty that any deal will be reached, the sources added.
The sources asked not to be identified because the negotiations are confidential.
A representative for Houston-based EnCap declined to comment. Denver-based Felix, and Oklahoma City, Oklahoma-based Devon did not respond to requests for comment.
Devon has oil acreage, as well as an interest in oil and gas pipelines, that are located close to Felix’s assets in northern Oklahoma, in an oil-rich area known as STACK. Felix was founded in 2013 with backing from EnCap.
Devon has a market capitalization of nearly $20 billion and operates in multiple areas, including Texas’s Permian Basin, the Rocky Mountains and Canada.
Besides Devon, other major players with investments in the area where Felix operates are Newfield Exploration Co NFX.N, Marathon Oil Corp MRO.N, Continental Resources Inc CLR.N and Cimarex Energy Co XEC.N.
Mergers between U.S. oil and gas companies have been few and far between this year. Noble Energy Inc's NBL.N acquisition of Rosetta Resources Inc in July for about $2 billion in stock was the first significant deal among U.S. shale oil producers following the steep fall in global crude prices.
In August, natural gas producer WPX Energy Inc's WPX.N acquired RKI Exploration & Production LLC for $2.35 billion.
Both deals gave the buyers access to the rich assets in Texas’ Permian basin, another highly desirable area.
Reporting by Mike Stone and Greg Roumeliotis in New York; Editing by Himani Sarkar
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