Devon to acquire STACK, Powder River acreage in deals totaling $2.5 billion

Devon Energy Corp., Oklahoma City, has agreed to acquire 80,000 net surface acres in the Anadarko basin STACK play from Felix Energy LLC, a Denver-based portfolio company of EnCap Investments, for $1.9 billion. In a second deal, Devon has agreed to acquire 253,000 net acres in the Powder River basin for $600 million.

In a related deal reported on Dec. 7, EnLink Midstream agreed to acquire Tall Oak Midstream LLC, a portfolio company for EnCap Flatrock Midstream, for $1.55 billion (OGJ Online, Dec. 7, 2015). Tall Oak’s gathering and processing assets lie in the core area of the STACK play and the vast majority of the Felix acreage position is dedicated to this midstream infrastructure.

Dave Hager, Devon president and chief executive officer, commented, “The synergistic relationship of these assets and our ownership in EnLink allowed the simultaneous acquisition of Felix’s upstream business by Devon with EnLink acquiring the associated midstream infrastructure of Tall Oak.”

The STACK and Powder River deals will be funded with $1.35 billion of Devon equity issued to sellers and $1.15 billion of cash on hand and borrowings.

Devon says it’s in the process of marketing its Access pipeline in Canada and planning to monetize various noncore upstream assets across its portfolio. The company has identified 50,000-80,000 boe/d of production from noncore assets to divest throughout 2016.

The company expects midstream and upstream divestitures to generate proceeds of $2-3 billion and plans to utilize sales proceeds to strengthen its financial position.

Acquired acreage

The 80,000 net surface acres being acquired in the STACK play are in Blaine, Canadian, and Kingfisher counties in Oklahoma, immediately northeast of Devon’s legacy STACK position. Situated in the over-pressured oil window of the play, the properties include low-risk development targets in up to 10 intervals including multiple landing zones in the Meramec, Osage, and Woodford formations, Devon said.

Given the potential for numerous landing zones and tighter infill spacing opportunities across this acreage, Devon has identified 1,400 risked locations, with an unrisked inventory of more than 3,000 locations.

The acquired properties include production of 9,000 boe/d and estimated risked resource of 400 million boe.

Upon closing of the Felix assets in early 2016, Devon’s daily production in the STACK play, which includes the Cana Woodford development, will increase to 80,000 boe/d. The company now has exposure to 430,000 net surface acres in the STACK with 5,300 risked locations.

The Powder River acreage lies to the south of Devon’s legacy position in Wyoming and includes production of 7,000 boe/d, of which 85% is oil. The leasehold resides in the core of the Powder River oil fairway and is most prospective for the Parkman, Turner, and Teapot formations, Devon said.

The contiguous acreage allows for extended-reach horizontal drilling, and the company says it has conservatively identified 500 development-ready locations with potential for as many as 2,700 unrisked locations as appraisal drilling further derisks multiple formations in the oil fairway.

Upon closing the deal, Devon’s production from its Rockies business unit will increase to more than 30,000 boe/d, and its Powder River leasehold position will more than double to 470,000 net acres with stacked-pay potential across multiple oil-prone formations.

Devon says the size of the opportunity is significant, with several billion barrels of unrisked resource across the basin.