Devon Energy Announces Strategic Acquisition in Williston Basin and Expands Share Repurchase Authorization by 67 Percent to $5 Billion

OKLAHOMA CITY, July 8, 2024 (GLOBE NEWSWIRE) — Devon Energy (NYSE: DVN) announced today that it has entered into a definitive purchase agreement to acquire the Williston Basin operations of Grayson Mill Energy in a transaction valued at $5 billion, consisting of $3.25 billion in cash and $1.75 billion in stock to the sellers. The transaction is subject to customary conditions, including various purchase price adjustments, and is expected to close by the end of the third quarter of 2024, with an effective date of June 1, 2024.

“The acquisition of Grayson Mill is an excellent strategic fit for Devon, allowing us to efficiently expand our oil production and operational scale while acquiring a significant runway of highly cost-effective drilling assets,” said Rick Muncrief, Devon’s president and CEO. “This transaction also creates immediate value within our financial framework, providing sustainable growth in earnings and free cash flow, which will translate into higher distributions to shareholders over time.”

KEY TRANSACTION INFORMATION

• Immediate increase in financial indicators – The transaction has an immediate impact on Devon’s key financial metrics per share, including earnings, cash flow, free cash flow and net asset value. The assets were acquired at less than 4 times EBITDAX, with an estimated free cash flow yield of 15 percent at a WTI oil price of $80.

• Increases the scale and scope of operations – The acquisition adds a high-margin production mix to Devon that further positions it as one of the largest oil producers in the U.S. Pro forma for the transaction, the company estimates its oil production will average 375,000 barrels per day, with total production averaging 765,000 barrels of oil equivalent (Boe) per day across a diversified portfolio of assets.⁽¹⁾

• Transforming Williston Basin Business – The transaction significantly expands the Company’s position in the Williston Basin by 307,000 net acres (70 percent operating interest). Production from the acquired properties is expected to be sustained at approximately 100,000 boe per day (55 percent oil) in 2025. With the increased scale in the basin, Devon expects to realize up to $50 million in average annual cash flow savings through operational efficiencies and marketing synergies. The acquisition also adds 500 gross prospects and 300 high-quality refractories that are competing effectively for capital to the Company’s portfolio. On a pro forma basis, Devon will have a 10-year inventory life in the Williston Basin with a steady growth rate of three serviced rigs.

• Midstream ownership increases margin – The acquired business generates market-leading operating margins in the Williston Basin by leveraging its midstream infrastructure ownership of 950 miles of gathering systems, an extensive network of disposal wells and crude oil storage terminals. This midstream asset is margin-accretive to more than $125 million of EBITDAX annually and provides a marketing opportunity to drive premium pricing through access points to multiple end markets.

• Improves the prospects for return of capital to shareholders – Due to the cash flow accretive nature of this transaction, Devon’s board of directors has expanded its share repurchase authorization by 67 percent to $5 billion through mid-2026. The company also expects this acquisition to be dividend accretive in 2025 and beyond.

• Maintains a strong financial position – The transaction structure supports Devon’s strong investment grade credit ratings with a projected net debt to EBITDAX ratio of approximately 1.0 times post-closing. The company plans to improve its financial strength by allocating up to 30 percent of its annual free cash flow to reduce $2.5 billion of debt over the next two years.

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(1) Pro forma production is a combination of Devon’s 2024 forecasts and Grayson Mill’s 2025 volumes of ~100 MBOED (~55% oil).

FINANCING DETAILS

Devon will finance the $5 billion acquisition with $3.25 billion in cash and issue 37 million shares of common stock valued at $1.75 billion. The company plans to finance the cash portion of the purchase price with a combination of cash on hand and debt.

OUTLOOK FOR 2024

Devon will provide updated 2024 guidance following the closing of the transaction.

ADVISORS

Citi is serving as financial advisor and Kirkland & Ellis LLP is serving as legal advisor to Devon.

WEB TRANSFER OF THE TELEPHONE CONFERENCE AND ADDITIONAL MATERIALS

Devon will host a conference call and webcast today at 7:30 a.m. Central Time (8:30 a.m. Eastern Time) to discuss this announcement. The webcast and related presentation materials are available on Devon’s home page at www.devonenergy.com.

ABOUT DEVON ENERGY

Devon Energy is a leading U.S. oil and gas producer with a leading multi-basin portfolio led by a world-class asset in the Delaware Basin. Devon’s disciplined cash-return business model is designed to deliver high returns, generate free cash flow and return capital to shareholders, while focusing on safe and sustainable operations.

Devon Investor Contacts
Scott Coody, 405-552-4735
Chris Carr, 405-228-2496

Devon Media Contact
Brooke Baum, 405-552-3448

FORECASTING STATEMENTS

This press release contains forward-looking statements within the meaning of the federal securities laws. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the Company’s control. These risks include, but are not limited to: the delay or failure to consummate the transaction due to unsatisfied closing conditions, such as regulatory approvals or other factors; the ultimate amount of cash consideration to be paid or equity consideration to be paid in the transaction due to purchase price adjustments or otherwise; the risk that, if acquired, the Grayson Mill Energy business will not perform as we expect, including with respect to future production or drilling inventory; and other risks identified in the Company’s 2023 Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. Investors are cautioned that such statements are not guarantees of future performance and that actual results or events may differ materially from those projected in the forward-looking statements. The forward-looking statements contained in this press release are made as of the date hereof. The Company does not undertake to update these statements as a result of new information, future events or other circumstances.

NON-GAAP DISCLOSURES

This press release includes non-GAAP (generally accepted accounting principles) financial measures, including forecasts of non-GAAP financial measures of EBITDAX and free cash flow on a combined basis. Due to the high variability and difficulty in making accurate forecasts and projections of certain information excluded from these forecasted measures, together with certain components of the calculations being inherently unpredictable, Devon is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measures without unreasonable effort. Accordingly, no disclosure of estimated comparable GAAP measures and no reconciliation of forward-looking non-GAAP financial measures has been included. Such non-GAAP measures are not alternatives to GAAP measures and should not be considered a substitute for analyzing results reported in accordance with GAAP. Additional information regarding Devon’s historical non-GAAP measures, including how they are defined, can be found in Devon’s first quarter 2024 earnings release and related Form 10-Q filed with the SEC.

NOTE ON RESERVES AND RESOURCE ESTIMATES

The SEC permits oil and gas companies to disclose only proven, probable and possible reserves in their SEC filings. Any reserve estimates provided in this press release that are not expressly identified as estimates of proven reserves may include estimated reserves or locations that have not necessarily been calculated in accordance with or are not contemplated by the SEC’s most recent reserve reporting guidelines. We encourage you to carefully review the oil and gas disclosures in the Company’s 2023 Annual Report on Form 10-K and our other reports and filings with the SEC.