Lower 48 stalwart Devon Energy Corp. has taken a leap into the super-charged acquisition game, with a goal to triple its Williston Basin production, by snapping up private equity-backed Grayson Mill Energy LLC in a $5 billion cash-and-stock takeover.
Oklahoma City-based Devon also would gain substantial midstream infrastructure across the Williston. Grayson, sponsored by EnCap Investments LP, has 900 miles of pipeline infrastructure that capture and transport natural gas, oil, produced water and freshwater.
The acquisition “allows us to efficiently expand our oil production and operating scale while capturing a meaningful runway of highly economic drilling inventory,” Devon CEO Rick Muncrief said.
Once the takeover is completed, Devon would control 430,000 net acres in the Williston, with targets in the Bakken and Three Forks shale formations. Houston-based Grayson operates 307,000 net acres across western North Dakota and eastern Montana, with more than 1,200 operated wells.
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Devon is one of the top multi-basin exploration and production (E&P) companies operating in the onshore. About 60% of its capital today is being directed to the Permian Basin. With Grayson, average output from the Williston could triple.
Average production overall would be 765,000 boe/d, with oil output of 375,000 b/d.
On a pro forma basis, Devon management said it would possess “an inventory life of up to 10 years in the Williston Basin at a constant development pace of three operated rigs.”
Production from the Grayson properties is expected to be “maintained” at around 100,000 boe/d in 2025, 45% weighted to natural gas and liquids and 55% to oil. The acquisition also would add 500 gross locations and 300 refracture well candidates “that effectively compete for capital in the company’s portfolio,” executives said.
While E&Ps have targeted the Williston mostly for its oil and liquids, North Dakota’s natural gas production growth was higher than both in April, reflecting rising gas-to-oil ratios, according to the state’s Department of Mineral Resources. Statewide gas production averaged 3.49 Bcf/d in April, up 3% month/month. Oil production, by contrast, rose by 1% to 1.24 million b/d.
‘Beyond The Permian’
BMO Capital Markets analyst Phillip Jungwirth said the transaction was “not a surprise, given Devon's multi-basin strategy and management's long-track record in the play, despite limited running room in the legacy position.”
Likewise, analyst Matt Portillo of Tudor, Pickering, Holt & Co. said merger and acquisition (M&A) activity by Devon was anticipated.
“We’re not surprised to see Devon in the M&A space, given the flurry of shale transactions over the past 12 months, with Grayson being one of few remaining private operators with scaled production,” Portillo wrote.
Enverus Intelligence Research’s principal analyst Andrew Dittmar said the transaction “continues a trend of buyers looking beyond the Permian to find buyable opportunities of scale in an increasingly consolidated market.
“Grayson Mill was one the largest remaining private opportunities reasonably likely to come up for sale,” he said. Grayson also “had the largest count of remaining undeveloped gross drilling locations.”
Devon already had a “substantial runway of remaining drilling opportunities,” Dittmar said. However, “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.”
The Mizuho Americas team led by analyst Nitin Kumar was not as enthusiastic.
“Through a busy period of industry consolidation over the last 18 months, our North Star for evaluating deals has been whether the transaction improves long-term cash generation capacity versus near-term financial accretion. On this measure, we find Devon's acquisition…falling short of the mark,” Kumar said.
