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 Devon said Wednesday that the assets include current production of
53,000 barrels of oil equivalent per day and 82,000 net acres with
at least 1,200 undrilled locations.
The acquisition includes acreage in DeWitt and Lavaca counties in
Texas. The assets are expected to reach a peak production rate of
about 140,000 BOE per day.
Devon was a pioneer in combining the use of horizontal drilling with
hydraulic fracturing to free up natural gas from shale rock
formations. That led to a boom in natural gas production last
decade, but the increased drilling eventually created a glut that
depressed natural gas prices. Devon continued to concentrate its
operations in natural gas, even as other companies refocused on
making profits from drilling for oil in states such as Texas,
Oklahoma and North Dakota.
Analysts say the GeoSouthern deal will give Devon a better balance
between oil and natural gas.
Canaccord Genuity analyst Robert Christensen said oil currently
accounts for 12 percent of Devon's total volume. "This deal would
likely increase Devon's oil production by a significant amount, as
GeoSouthern is the 4th largest oil producer in the Eagle Ford," he
wrote in a note to clients.
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GeoSouthern will continue to run its other assets in the Texas Gulf
Coast region and other areas. Its corporate partner, The Blackstone
Group, will exit its stake in the company as a result of the Devon
transaction.
Devon plans to fund the deal with available cash and borrowings. The
deal is expected to close in early 2014.
Devon's stock gained 69 cents, or 1.1 percent, to $63.46 in midday
trading Wednesday. The shares jumped 5 percent Tuesday on reports
that Devon was close to a deal with GeoSouthern.
[Associated
Press]
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