Devon Energy to buy Anderson Exploration for $4.6 billion

Sam Fletcher
OGJ Online

HOUSTON, Sept. 4 -- Devon Energy Corp. of Oklahoma City is acquiring Calgary-based Anderson Exploration Ltd. in a $4.6 billion deal that will give it the most North American oil and gas reserves of any independent, officials said Tuesday.

This latest acquisition comes on the heels of Devon's Aug. 14 agreement to buy Mitchell Energy & Development Corp., Houston, for $3.5 billion in cash and stock (OGJ Online, Aug. 14, 2001).

The Mitchell Energy acquisition will make Devon the second largest US independent gas producer, after Anadarko Petroleum Corp., Houston. However, successful completion of both transactions will make Devon the largest independent producer of oil and natural gas in North America, claimed Devon.

Both transactions are expected to close by the end of this year. Neither deal is conditional upon the other.

Through the Anderson acquisition, Devon would get additional proved reserves estimated at 532 million boe, plus some 8 million net undeveloped acres. That would increase Devon's total proved reserves by 35% to 2 billion bbl of oil equivalent. Its North American reserves would increase to 87% of Devon's worldwide reserves, officials said.

As a result, "Devon will be in position to deliver strong production and reserve growth for years to come," said J. Larry Nichols, chairman, president and CEO.

Boards of directors of both companies have unanimously approved Devon's cash offer of $25.80/share, or $40 (Can.), for Anderson's stock. The price also includes assumption of $1.2 billion of debt and other obligations.

The company allocated $680 million of the aggregate purchase price to Anderson's undeveloped acreage and seismic data, officials said.

"Expanding our presence in Canada has been an important objective for Devon," said Nichols. "Anderson was at the top of our list of acquisition opportunities."

Anderson was the most active exploratory driller in Canada over the last 2 years. J. C. Anderson, chairman and CEO of the Canadian firm, "has built an exceptional, gas-weighted production platform with powerful exploration potential," Nichols said. "Combining Anderson with our existing Canadian organization firmly establishes Devon in Canada," he said.

Anderson's undeveloped Canadian acreage includes 6 million acres in the Western Canadian Sedimentary Basin and 2 million acres in northern Canada, with holdings in the Northwest Territories, the Yukon, the Mackenzie Delta, and the Beaufort Sea. Those frontier regions are believed to hold some of the largest remaining undeveloped oil and gas deposits in North America.

Anderson's properties complement Devon's existing Canadian holdings in the Peace River Arch, Foothills, and Northern Plains areas, officials said. Anderson will be merged with Devon's subsidiary in Calgary.

"By combining our existing Canadian staff with Anderson's, we will build one of the strongest workforces in the Canadian oil patch. We expect a very smooth integration of Anderson's staff and properties and anticipate a great future for Devon in Canada," said John Richels, president and CEO of Devon's Canadian subsidiary.

"Speaking as someone who looks forward to becoming Devon's largest shareholder, I fully support the acquisition of Anderson. This transaction creates the preeminent North American independent," said George P. Mitchell, founder, chairman and CEO of Mitchell Energy & Development.

Meanwhile, Devon and Mitchell plan to amend their preliminary joint proxy statement and prospectus, filed with the US Securities and Exchange Commission, to include the pro forma effects of the Anderson acquisition.

Devon expects the acquisition of Anderson to be accretive to reserves, production share, and cash margin per share and dilutive to earnings/share in the near-term.

Its North American gas production would increase to 2.2 bcfd from 1.6 bcfd and liquids production to 180,000 b/d from 125,000 b/d, making Devon the largest independent producer of both gas and liquids in North America, said officials.

Devon arranged to finance the purchase of Anderson and the cash portion of its Mitchell acquisition with a 5-year amortizing loan facility of about $6 billion. The company also expects to issue long-term debt to prepay the 2-3 years of amortization of the 5-year loan facility.

Meanwhile, Devon suspended its share repurchase program.

If the deal fails to go through, Anderson is obligated under certain circumstances to pay Devon a noncompletion fee of $135 million, or $210 million (Can.). Anderson officials agreed not to solicit further offers but reserved the right to respond to a superior proposal, should one be forthcoming.

The transaction is subject to US and Canadian regulatory approvals and other customary closing conditions.

Contact Sam Fletcher at samf@ogjonline.com

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