Validus Energy is a pure-play Eagle Ford producer with an acreage position adjacent to Devon’s existing leasehold in the Eagle Ford Shale. (Source: Hart Energy)
Devon Energy Corp. is scaling up in the Eagle Ford Shale with a $1.8 billion cash deal to buy privately held Validus Energy announced early on Aug. 9.
Validus is a pure play with a position that includes 42,000 net acres in the core of the Karnes County oil window in South Texas with average production of 35,000 boe/d. The acreage is adjacent to Devon’s existing leasehold in the Eagle Ford Shale.
The addition of Validus almost doubles Devon’s current Eagle Ford footprint. The company’s pro forma position of 82,000 net acres will produce an estimated 73,000 boe/d this year—well above the 38,000 boe/d that Devon recently reported for the basin during the second quarter.
“Color us a bit surprised,” said Tudor Pickering Holt & Co. analyst Matt Portillo in a note to investors.
The added scale poises Devon to realize $50 million in average annual cash flow savings from capital efficiencies, operating improvements, and marketing synergies, while keeping leverage relatively unchanged at current strip prices, management said.
A cash flow yield of 30% at strip throughout the next year would make the transaction accretive enough that Devon may increase its outlook for its variable dividend by up to 10% and accelerate the firm’s ability to close out its existing $2 billion share buyback program.
Validus’ inventory, which includes 350 drilling locations, adds ample runway of “highly economic inventory that is complementary to our existing footprint in the Eagle Ford,” Devon CEO Rick Muncrief said in a news release.
It’s another “sensible” deal for Devon, said analyst Phillips Johnston at Capital One Securities (COS).
Devon stock gained almost 2% in pre-market open trading, which priced its shares at $58.65 each.
Quick pricing analysis at COS suggests Devon is paying about $51,000 per flowing boe—below the firm’s current multiple of $69,000/flowing boe, Johnston said. Moreover, the Validus acreage has a higher oil cut of 70% relative to Devon’s standalone rate close to 50%.
This transaction is Devon’s second sizable deal in recent months.
The Oklahoma City-based producer spent some $865 million in a June acquisition of RimRock Oil and Gas’ position in the Bakken. The Validus deal is roughly twice the size of the previous purchase, but it has similar features—a contiguous position and immediate accretion.
Eagle Ford
|
|||
| Devon | Validus | Pro Forma | |
| Net Acreage | 40,000 | 42,000 | 82,000 |
| Working Interest | 50% | 90% | 70% |
| Q2 Production (boe/d) | 38,000 | 35,000 | 73,000 |
| Effective date | June 1 | ||
| Closing | End of Q3 2022 | ||
Validus Energy is financially backed by equity commitments from Pontem Energy Capital, other institutions, and private investors. Led by Skye Callantine as president and CEO, the Denver-based company acquired Ovintiv Inc.’s Eagle Ford Shale asset for $880 million in 2021.
The founder of Felix Energy, Callantine previously built and sold roughly $7 billion of assets over an 8-year period under the Felix Energy platform.
Ovintiv had purchased its Eagle Ford position in 2014. Known as Encana Corp. at the time, the company had paid roughly $3.1 billion for 45,500 net acres within the Eagle Ford Shale in Karnes, Wilson and Atascosa counties, Texas, from Freeport-McMoRan.
Recommended Reading
DOE Approves Non-FTA Permit Extension for Golden Pass LNG
2025-03-05 - Golden Pass LNG will become the ninth U.S. LNG export facility following the U.S. Department of Energy’s approval for an extension of its non-free trade agreement permit.
Court Rejects Activists’ Protest of Woodside LNG Pipeline Project
2025-03-31 - Woodside Energy Group prevailed against environmental groups’ arguments to stop a pipeline to Louisiana LNG in a case that originated before the Australian company bought the project.
Trade War! Or Maybe Not
2025-03-06 - An energy industry that prefers stability gets hit with whiplash as it attempts to adjust to the Great Disruptor taking over the White House.
Trump Fires Off Energy Executive Orders on Alaska, LNG, EVs
2025-01-21 - President Donald Trump opened his term with a flurry of executive orders, many reversing the Biden administration’s policies on LNG permitting, the Paris Agreement and drilling in Alaska.
API: Congress Needed for Long-Lasting Policy Changes
2025-01-14 - The American Petroleum Institute lays out its political plans as the next presidential administration prepares to take office.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.