Devon Energy to buy Eagle Ford assets for $6 billion

Devon Energy Corp. has reached a definitive agreement to purchase Eagle Ford assets from Woodlands, Tex.-based independent GeoSouthern Energy for $6 billion in cash. The transaction is expected to close in first-quarter 2014.

Current production in the assets consists of 53,000 boe/d and 82,000 net acres including at least 1,200 undrilled locations. The risked recoverable resource is estimated at 400 million boe, with the majority as proved reserves.

The acreage is in the largely contiguous Lavaca and DeWitt counties in Texas, the latter of which holds acreage that’s largely derisked. Oklahoma City-based Devon stated the acreage position demonstrates the highest average initial production rates in the entire play, as average estimated ultimate recoveries in DeWitt County are more than 800,000 boe/well.

Devon said it expects the assets to grow at a compound growth rate of 25%/year over the next several years, reaching a peak production rate of 140,000 boe/d. The company’s development drilling program is immediately self-funding and expected to generate annual free cash flow of $800 million starting in 2015 and growing thereafter.

Devon said it will fund the purchase with a combination of cash on hand and borrowings. The company expects to repay the borrowings with free cash flow and proceeds from the monetization of noncore assets.

Last month, Devon signed a definitive agreement with Crosstex Energy LP, Dallas, to combine Devon’s US midstream assets with those of Crosstex to form a new midstream business (OGJ Online, Oct. 21, 2013).

Both companies’ assets are in the Eagle Ford, Barnett, Permian basin, Cana and Arkoma Woodford, Haynesville, Gulf Coast, Utica, and Marcellus. The new company will have 7,300 miles of gathering and transportation pipelines, 13 processing plants with 3.3 bcfd of net processing capacity, 6 fractionators with 165,000 b/d of net fractionation capacity, as well as barge and rail terminals, product storage facilities, brine disposal wells, and an extensive crude oil trucking fleet.