Devon builds up Eagle Ford position with $1.8bn Validus purchase
Oklahoma-based Devon Energy has struck a deal to buy Eagle Ford operator Validus Energy for $1.8bn in cash, expanding its production in the key Texas shale play by 35,000 barrels of oil equivalent/day.
The transaction, set to close at the end of the third quarter, will give Devon 42,000 of net acres in Eagle Ford that is adjacent to its existing position in the area. Around 70% of Validus' present production is oil, and volumes are expected to rise to 40,000 boe/d on average over the next year, Devon said.
Devon will also add to its portfolio 350 repeatable drilling locations in the core of the Karnes Trough oil window along with 150 high-quality refrac targets, which the company said would help sustain its high-margin production and free cash flow generation for several years.
"The Validus acquisition captures a top-tier oil resource with a meaningful runway of highly economic inventory that is complementary to our existing footprint in the Eagle Ford," Devon CEO Rick Muncrief said in a statement. "This accretive transaction also enhances our financially-driven strategy that is designed to deliver per-share financial growth and accelerate the return of capital to our shareholders."
Devon said the acquisition was valued at two-times cash flow, with a free cash flow yield of 30% at strip pricing in the first year, and would immediately give in growth in earnings, cash flow, free cash flow and net asset value. The company also expects to realise $50mn in synergy savings from capital efficiencies, operating improvements and marketing synergies.