Devon Energy and WPX Energy announced Sept. 28 they have entered into an agreement to combine in an all-stock merger of equals transaction. The strategic combination will create a leading unconventional oil producer in the United States, with an asset base underpinned by a premium acreage position in the economic core of the Delaware Basin. The combined company, which will be named Devon Energy, will benefit from enhanced scale, improved margins, higher free cash flow, and the financial strength to accelerate the return of cash to shareholders through an industry-first “fixed plus variable” dividend strategy.
According to Dave Hager, Devon’s president and CEO, this merger is a transformational event for Devon and WPX as the two unite their complementary assets, operating capabilities, and management teams to maximize their business in today’s environment. Said Hager: “Bringing together our asset bases will drive immediate synergies and enable the combined company to accelerate free cash flow growth and return of capital to shareholders. In addition to highly complementary assets, Devon and WPX have similar values, and a disciplined returns-oriented focus, reinforcing our belief that this is an ideal business combination.”
For his own part, Rick Muncrief, WPX’s chairman and CEO, said: “This merger-of-equals strengthens our confidence that we will achieve all of our five-year targets outlined in late 2019,” said “The combined company will be one of the largest unconventional energy producers in the U.S. and with our enhanced scale and strong financial position, we can now accomplish these objectives for shareholders more quickly and efficiently. We will create value for shareholders of both companies through the disciplined management of our combined assets and an unwavering focus on profitable, per-share growth.”
Under the terms of the agreement, WPX shareholders will receive a fixed exchange ratio of 0.5165 shares of Devon common stock for each share of WPX common stock owned. The exchange ratio, together with closing prices for Devon and WPX on Sept. 25, 2020, results in an enterprise value for the combined entity of approximately $12 billion. Upon completion of the transaction, Devon shareholders will own approximately 57 percent of the combined company and WPX shareholders will own approximately 43 percent of the combined company on a fully diluted basis.
The transaction, which is expected to close in the first quarter of 2021, has been unanimously approved by the boards of directors of both companies. Funds managed by EnCap Investments L.P. own approximately 27 percent of the outstanding shares of WPX and have entered into a support agreement to vote in favor of the transaction. The closing of the transaction is subject to customary closing conditions, including approvals by Devon and WPX shareholders.
The acquisition of these Devon properties puts Kalnin in the top 20 natural gas companies in America—a feat accomplished in the company’s short five years. The attached image shows the extent of the Devon area, shaded in grey.