Devon Energy is expanding its footprint in the Bakken Shale play with its $5-billion agreement to acquire the Williston Basin business of EnCap Investments’ Grayson Mill Energy. The cash/stock deal will consist of $3.25 billion of cash and $1.75 billion of stock to the sellers. The deal adds 307,000 net acres (70% working interest) to Devon’s Williston position. Production from the acquired properties is expected to be maintained at approximately 100,000 BOE/D (55% oil) in 2025.
Devon said the acquisition also adds 500 gross locations and 300 high-quality refrac candidates that effectively compete for capital in the company’s portfolio. On a pro forma basis, Devon will possess an inventory life of up to 10 years in the Williston Basin at a constant development pace of three operated rigs.
As part of the deal, Devon will also be acquiring midstream assets in the form of 950 miles of Williston Basin gathering systems and a network of disposal wells and crude storage terminals.
The operator expects to realize up to $50 million in average annual cash flow savings from operating efficiencies and marketing synergies.
The purchase now makes Devon the fourth- largest producer in the Williston based on gross operated production when accounting for the combination of ConocoPhillips and Marathon oil, which will be third behind Chord Energy and Continental Resources.
“The acquisition of Grayson Mill is an excellent strategic fit for Devon that allows us to efficiently expand our oil production and operating scale while capturing a meaningful runway of highly economic drilling inventory,” said Rick Muncrief, Devon’s president and CEO. “This transaction also creates immediate value within our financial framework by delivering sustainable accretion to earnings and free cash flow that will result in higher distributions to shareholders over time.”
The transaction is subject to customary terms and conditions and is expected to close by the end of the third quarter of 2024, with an effective date of 1 June 2024.
Devon will fund the $5-billion acquisition with $3.25 billion of cash and issue 37 million shares of common stock valued at $1.75 billion. The company plans to finance the cash portion of the purchase price through a combination of cash on hand and debt.
“The deal continues a trend of buyers looking beyond the Permian to find buyable opportunities of scale in an increasingly consolidated market,” said Andrew Dittmar, principal analyst at Enverus Intelligence Research. “Grayson Mill was one the largest remaining private opportunities reasonably likely to come up for sale with around 500 remaining drilling locations and over 100,000 BOE/D production.
"Among remaining private equity-sponsored E&Ps, as opposed to truly private companies like Continental Resources, Grayson Mill had the largest count of remaining undeveloped gross drilling locations. While Devon still had a substantial runway of remaining drilling opportunities, pressure may have been mounting on the company to strike a deal to keep pace with peers that had been rapidly rolling up remaining opportunities,” he said.
Grayson Mill’s Williston position gives Devon a substantially larger footprint in Williams, McKenzie, and Mountrail Counties of North Dakota—outside of its core Dunn County holdings. Overall, the deal adds 307,000 acres to Devon’s existing 123,000-acre position.
EnCap made its initial investment in Grayson Mill in 2016. The group had been considering the sale of Grayson Mill for the past several months.
Grayson Mill bolstered its Williston position via a pair of acquisitions over the past few years. In 2021, it purchased the Bakken assets of Norway’s Equinor for $900 million. Just last year, the company acquired Ovintiv’s Bakken holdings for $825 million.
