Portfolio Stock / Devon Energy Corp.
Reuters
Devon to Buy Ocean Energy for $3.5 Billion
Monday February 24, 5:03 pm ET
By David Sinkman
NEW YORK (Reuters) - Devon Energy Corp. (AMEX:DVN - News) on Monday said it would buy Ocean Energy Inc. (NYSE:OEI - News) for about $3.5 billion in stock, creating the largest U.S.-based independent oil and natural gas producer.
The deal is the latest in a string of acquisitions for Devon, which has more than doubled its size in recent years, and comes as energy prices have rallied on concerns over the possibility of a war in Iraq and a cold U.S. winter.
Under this deal, Devon would build its stable of deepwater oil and gas fields, where companies are spending capital in hopes of finding world-class deposits, and strengthen its business in the Gulf of Mexico, Angola, Equatorial Guinea, the Ivory Coast and Nigeria.
Terms of the transaction call for Devon to pay $19.97 a share for Ocean, a premium of 3.6 percent over Friday's closing stock market price. Also included is the assumption of $1.8 billion of Ocean's debt and other obligations.
"Devon benefits because they aren't paying a real premium and the deal helps them to get access to offshore and international resources," said Irene Haas, an analyst at Sanders Morris Harris, who called the combination "very strong" and described it as having "a broad portfolio."
While not getting any real premium, Haas said Ocean shareholders will benefit from lower volatility because of Devon's stable cash flow.
Another analyst, Gene Gillespie of Howard, Weil, Labouisse, said investors in Ocean should also be helped by a likely increase in the combined company's share price.
Shares of Ocean Energy rose 73 cents, or 3.8 percent, to close at $20 on the New York Stock Exchange (News - Websites), while shares in Devon rose 7 cents, or less than 1 percent, to $48.30 on the American Stock Exchange.
SMALL PREMIUM
The combined company, which will be named Devon Energy Corp. and headquartered in Oklahoma City, will have production of about 650,000 equivalent barrels of oil per day. It will produce 2.4 billion cubic feet of natural gas and 250,000 barrels of oil and natural-gas liquids a day.
The boards of both companies have approved the deal.
The deal calls for Ocean stockholders to receive 0.414 shares of Devon common stock for each common share of Ocean. Devon will issue 73.4 million new shares to Ocean's shareholders.
Based upon Devon's closing stock price of $48.23 per share on Friday, the total value of the stock to be issued will be about $3.5 billion.
Devon Chairman and Chief Executive Larry Nichols will retain his positions, while Ocean's Chairman and CEO James Hackett will be named president and chief operating officer of the combined company. The board of directors will consist of nine members from Devon and four members from Ocean.
Independent firms engage in exploration and production, or the upstream end of the business, while the big integrated companies like Exxon Mobil Corp. (NYSE:XOM - News) drill for oil and refine it.
ASSET SALES, COST SAVINGS SEEN
Devon has typically sold some properties after each of its acquisitions and investors can expect a similar situation following this deal, a spokesman said.
Devon last year sold assets to reduce debt following an acquisition spree in 2001, when it bought Anderson Exploration Ltd. of Canada for $3.4 billion, and Mitchell Energy & Development Corp. of Texas for $3.1 billion.
With this deal, Devon said the companies expect general and administrative cost savings of at least $50 million annually. A company spokesman said it is premature to discuss job layoffs, but that integration teams will be looking at redundancy.
The combined company will have about 2.2 billion barrels of oil equivalent proved reserves, with 84 percent in North America. Ninety percent of Devon's worldwide production will be from North America, of which 69 percent will be natural gas.
The deal is subject to approval by the shareholders of both companies as well as expiration of the Hart-Scott-Rodino waiting period and other customary closing conditions.
The agreement between the companies contains reciprocal provisions for the payment of termination fees under certain circumstances. The deal is expected to close in the second or third quarter of 2003.
Dow Jones Business News
Devon Chief Exec Sees Permanence To Strong Gas Prices
Monday February 24, 1:25 pm ET
By Roy R. Reynolds, Of DOW JONES NEWSWIRES
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HOUSTON (Dow Jones)--Devon Energy Corp. chairman and chief executive Larry Nichols said Monday the acquisition of Ocean Energy Inc. (NYSE:OEI - News) will help the company take advantage of natural gas prices that could be stuck at current high levels.
"We've permanently moved into a new era of gas prices," Nichols said Monday in a conference call for reporters. The executive said that, barring some future mild winter season or another uncommon occurrence, the energy industry won't again see low natural gas prices between $2 and $3 per million British thermal units.
Natural gas futures traded Monday at the New York Mercantile Exchange as high as $8.30/mmbtu, and traded at $8.24/mmbtu early in the afternoon, up $1.624.
"Because of the way storage is being depleted at a high rate, we're going to see strong prices all year," Nichols said.
Devon announced Monday morning that it would purchase Ocean Energy in a deal valued at about $5.3 billion. During an earlier conference call for analysts, Nichols said the deal should close sometime in May.
The combined company will control reserves of about 2.2 billion barrels of oil equivalent and produce around 653,000 boe per day, according to Jim Hackett, chairman, president and chief executive of Ocean Energy.
The addition of deepwater and other reserves from the acquisition of Ocean won't deter Devon's exploration efforts, Nichols said.
Both companies will "be looking for exploration prospects going forward," he said.
That fits within the current industry trends, which have many energy companies scrambling to meet demand.
According to oil service company Baker Hughes Inc. (NYSE:BHI - News) - which publishes a weekly count of active drilling rigs - there are currently 928 rigs seeking oil and gas, 136 more than in the same period a year ago.
The purchase of Ocean Energy also gives Devon deepwater Gulf of Mexico developments and a presence in increasingly-important West African fields.
"Devon has a lot of onshore properties," Nichols said. "What we don't have are the major projects coming online this year and next year that Ocean does.
"Our assets complement each other very well."
Around 2/3 of the combined company's production will center on natural gas, the rest will focus on oil.
As long as the merger is given a green light by regulators such as the Federal Trade Commission, the combined company will become the largest independent energy company in the world.
"We'd actually be producing more gas on a daily basis than either Chevron ( CHV) or (Royal Dutch/Shell Group's (RD)) Shell," Nichols said.
Neither Nichols nor Hackett predicted any regulatory hurdles for the merger during Monday's conference calls.
"If the FTC can let Exxon and Mobil merge together, I don't think they'll have a problem with us," Nichols said. |
