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Devon to buy Mitchell Energy for $3.1 billion, boosting gas reserves


By the OGJ Online Staff

HOUSTON, Aug. 14 -- Devon Energy Corp., Oklahoma City, said Tuesday it would buy Mitchell Energy & Development Corp., The Woodlands, Tex., for $3.1 billion in cash and stock.

When the deal is completed in the fourth quarter, Devon will become the second largest US independent gas producer, after Anadarko Petroleum Corp., Houston.

The boards of both companies have approved the deal, under which Mitchell shareholders would get $31 cash and 0.585 of a Devon share for each share of Mitchell stock. This requires Devon to pay $1.6 billion and issue 30.2 million shares to Mitchell's shareholders.

Based upon Devon's closing price of $50.26/share on Aug. 13, the deal is valued at $3.1 billion. Devon would also assume $400 million of debt and other obligations of Mitchell.

George Mitchell, chairman and CEO of Mitchell, and his wife own 46% of Mitchell's outstanding shares and are due to own 9% of Devon's stock. Todd Mitchell, son of George Mitchell, will join Devon's board.

J. Larry Nichols, Devon chairman, president, and CEO said, "The Mitchell properties fit perfectly with our long-term objectives. The reserves are concentrated -- nearly all in Texas, 71% natural gas with an impressive growth curve. In addition to the oil and gas properties, we will also acquire one of the largest suites of US midstream assets of any independent. We believe this transaction can deliver significant growth in per share value."

George Mitchell said, "This transaction provides important benefits to our shareholders and employees. It provides significant value while retaining a unique opportunity to participate in the exciting upside potential of Devon. Our shareholders and employees will benefit from becoming part of a larger, stronger and more diversified company."

Based upon estimates as of June 30, Devon would acquire 2.5 tcf of gas equivalent in the acquisition, increasing its proved reserves to more than 1.5 billion boe. Reserves would be 58% natural gas, 32% oil, and 10% gas liquids. About 82% of those reserves would be in North America.

Devon would also acquire natural gas processing plants, pipelines, and other midstream assets valued between $800 million and $1 billion.

The two companies produced 1.4 bfcd in the US in the second quarter, making Devon the second largest independent gas producer in the nation.

Devon said it expects operating and overhead synergies of at least $20 million/year.

After the acquisition, Devon's outstanding shares will increase from 126 million to 156 million. Its capital structure will include $150 million in preferred securities, about $3.4 billion of net long-term debt, and other long-term liabilities of $340 million.

The $3.4 billion of debt excludes certain Devon debentures that are exchangeable into Chevron common stock. (Devon owns 7.1 million shares of Chevron.)


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