Devon Energy to acquire Santa Fe Snyder in $3.35 billion deal
Devon Energy Corp., Oklahoma City, has agreed to acquire Santa Fe Snyder Corp., Houston, for about $3.35 billion in stock and assumed debt, in a deal creating one of the top five US independent oil and gas companies. Devon Chairman Larry Nichols says the combined company will be stronger to compete than either partner would be independently.
Devon Energy Corp., Oklahoma City, has agreed to acquire Santa Fe Snyder Corp., Houston, for about $3.35 billion in stock and assumed debt in a deal creating one of the top five US independent oil and gas companies. The company will continue to be named Devon Energy Corp. and will remain headquartered in Oklahoma City.
Under the agreement, Santa Fe Snyder shareholders will receive 0.22 share of Devon common stock for each Santa Fe Snyder common share. As a result, Devon shareholders will own about 68% of the combined company and Santa Fe Snyder shareholders about 32%. The deal includes assumption of about $1 billion in debt and liabilities.
The combined company, with total proved reserves of about 1.1 billion boe, will be "stronger and better positioned to compete together than either would be independently" said Larry Nichols, Devon chief executive. "Both our companies have been active with the drill bit, and both have been active acquirers-consolidators. Our larger platform should enhance both strategies."
Santa Fe Snyder was formed last year when Santa Fe Energy Resources Inc. bought Snyder Oil Corp. for $853 million. Devon bought PennzEnergy Co. for $2.61 billion in August, after buying Canada's Northstar Energy Corp. for $787 million in 1998.
Nichols, Devon's current chief executive, will serve as president and chief executive of the combined company. James L. Payne, Santa Fe Snyder's current chief executive, will serve as vice-chairman. and James L. Pate, Devon's current chairman, will serve as board chairman.
The companies said they expect to realize cost savings of $30-35 million/year but did not specify if savings would be through job cuts. The companies have substantial property overlap in core operating regions, including the Permian basin, the Rocky Mountains, and the Gulf of Mexico.
Some 76% of the company's reserves would be located in North America and are weighted 58% to natural gas. The company also would have substantial international reserves, including positions in Azerbaijan, Southeast Asia, and South America.
In early trading Friday, Devon shares fell 1 15/16 to 56 3/4. Santa Fe Snyder shares rose 1 1/16 to 12 1/16. Shares in most oil companies have begun to rise as higher oil prices boost earnings. Devon reported record revenue and earnings for the first quarter of 2000. Net earnings were $61.1 million or 68 �/common share, up from $6 million or 12 �/common share in the first quarter of 1999. Sales of oil, gas, and NGL increased 294% in the first quarter of 2000 to a record $336 .3 million, up from $85.4 million in the first quarter of 1999. Devon said the Santa Fe Synder purchase will add to its earnings per share.
Both boards have approved the merger. The companies expect to close the transaction in the third quarter, contingent on shareholder and regulatory approval. The accounting method for the merger is expected to be a "pooling of interests" but is not a condition of the transaction. Devon expects to remain on the full-cost method of accounting. Morgan Stanley Dean Witter acted as financial advisor to Devon, and Chase Securities acted as financial advisor to Santa Fe Snyder.
On a pro forma basis, the companies produced about 30 million boe in the first quarter of 2000. For the full year, on a pro forma basis, the company expects to produce 115-125 million boe equivalent. Earlier, Devon outlined an ambitious drilling and exploration program for the year, hiking its budget to $510 million, up significantly from what it and PennzEnergy both were spending prior to their merger in 1999.