Devon Energy and WPX Energy have entered into an agreement to combine in an all-stock merger of equals, creating one of the largest unconventional oil producers in the US.
The transaction, which has been unanimously approved by the boards of directors of both companies, is expected to close in the first quarter of 2021. The combined company, which will have an estimated enterprise value of $12 billion, will retain the Devon Energy name. Devon shareholders will own approximately 57% of the combined company, while WPX shareholders will own the remaining 43%.
“This merger is a transformational event for Devon and WPX as we unite our complimentary assets, operating capabilities and proven management teams to maximize our business in today’s environment, while positioning our combined company to create value for years to come,” Dave Hager, President and CEO of Devon, said in a statement. “Devon and WPX have similar values and a disciplined returns-oriented focus, reinforcing our belief that this is an ideal business combination.”
Between them, Devon and WPX produce 277,000 bbl/day from their unconventional assets. The combined company will hold 400,000 net acres in the Delaware Basin, accounting for nearly 60% of its total oil production. The portfolio also includes acreage in the Anadarko Basin, Williston Basin, Eagle Ford Shale and Powder River Basin.
“The combined company will be one of the largest unconventional energy producers in the US,” said Rick Muncrief, WPX Chairman and CEO. “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.”
Devon estimated the merger will drive $575 million in annual cash flow savings by the end of next year and more than $2 billion over the next five years. These cost improvements are expected to be attained through operational efficiencies, general and administrative savings and reduced financing expense.
Alex Beeker, Principal Analyst for Corporate Upstream at Wood Mackenzie, said the consultancy has expected Devon to “make a move” for some time – with $1.5 billion in cash on its balance sheet, the company is on a relatively strong financial footing – and that a merger between Devon and WPX “makes sense operationally.”
“We like the diversification WPX brings, particularly with mature Bakken production. We expect the combined budget – if the deal closes – to be less than the sum of the parts, so Devon’s cash flow should improve,” Mr Beeker said.
Following the merger, the company’s board of directors will consist of 12 members – 7 from Devon and 5 from WPX. Mr Hager will be appointed executive chairman of the board and Mr Muncrief will be named President and CEO.