Analyzing Devon Energy's Acquisition of Grayson Mills

Devon Growing Oil Production Through the Bakken

Devon Energy (DVN) announced the acquisition of Grayson Mill Energy's (private) Williston Basin business for $5B, comprised of $3.25B in cash and $1.75B in stock. The deal is expected to close by the end of 3Q24 and is immediately accretive to Devon's financial metrics. The acquisition positions DVN as a leading U.S. oil producer, increasing its oil production to ~375Mbopd and total production to ~765Mboepd.

While U.S.-based peers have strengthened their Permian-based acreages and inventories through recent acquisitions, market observers were waiting to see how DVN would respond, possibly with a comparable Permian transaction. However, DVN’s Bakken acquisition suggests greater “value” in its existing, diversified expertise across multiple basins versus strengthening its acreage position in the Delaware basin but at a regional premium. Oil production growth appears to be the driving force for DVN with oil production accounting for ~55% of total Bakken production.

The acquisition significantly strengthens DVN’s presence in the Williston Basin, adding 307,000 net acres to its portfolio and tripling its in-basin production to ~150Mboepd. This expansion also includes 500 new drilling locations and 300 high-quality refracturing candidates, providing DVN with a decade of inventory at a steady development pace.

Ownership of midstream infrastructure, including 950 miles of gathering systems and crude storage terminals, is expected to enhance DVN’s operating margins by more than $125MM annually. This infrastructure provides crucial access to multiple end-use markets, which in turn bolsters the company’s pricing capabilities.

Looking ahead, DVN is expected to provide updated capital and production guidance upon the close of the transaction in August/September. In the meantime, my production and Capex forecast includes the following:

• Production estimate: (FY24) ~725Mboepd; (FY25) ~735Mboepd

• Capex estimate: (FY24) ~$3.8B; (FY25) ~$4.0B

• Rigs estimate: (FY24) 26.9; (FY25) 28.4

• Wells Drilled, Net: (FY24) ~450; (FY25) ~475

• Wells Completed, Net: (FY24) ~375; (FY25) ~400

Companies Mentioned

• Devon Energy Corporation (DVN)

• Grayson Mill Energy (Private)

_{Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Patrick Enwright accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Patrick Enwright makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.}