Devon Energy Corp., Oklahoma City, Okla., agreed to acquire Denver-based Validus Energy, an Eagle Ford operator, for total cash consideration of $1.8 billion, the company said in a release Aug. 9.
This acquisition includes 42,000 net acres (90% working interest) in Karnes County, Tex., adjacent to Devon’s existing leasehold in Dewitt County. Privately held Validus’s current production is about 35,000 boe/d (70% oil), with volumes expected to increase to an average of 40,000 boe/d over the next year. Validus is currently running two rigs in the field.
The transaction also adds 350 repeatable drilling locations in the core of the Karnes Trough oil window along with 150 refrac candidates, Devon said. Existing and acquired assets combined, Devon expects to hold 82,000 net acres (70% working interest) in the Eagle Ford with second-quarter combined production in the play of 73,000 boe/d (60% oil).
Valudis acquired the acreage in 2021 in a deal with Ovintiv Inc., Denver, for $880 million, Cowen analysts said in a note following Devon’s announcement (OGJ Online, Mar. 24, 2021).
Devon expects to realize $50 million in average annual cash flow savings from capital efficiencies, operating improvements, and marketing synergies.
The deal, subject to customary terms and conditions, is expected to close at the end of this year’s third quarter and follows on the heels of Devon's $865-million deal to acquire Bakken assets from RimRock in June (OGJ Online, June 9, 2022).
Asked about the company’s acquisition strategy on its second-quarter earnings call last week, Rick Muncrief, president and chief executive officer, said Devon will continue to look for opportunities like the RimRock deal. “There's something pretty attractive about buying something at 2x cash flow in this day and time when you think that it really fits in with your story and you've got the industrial logic,” he said Aug. 2.
The company’s second-quarter production averaged 616,000 boe/d, an increase of 7% from first-quarter 2022. Oil production accounted for the largest component of the company’s product mix at 49% of total volumes. The company reported net earnings of $1.9 billion for the quarter, with adjusted earnings of $1.7 billion. Operating cash flow totaled $2.7 billion in the quarter.