Devon Energy reached a deal to buy GeoSouthern Energy’s holdings in southern Texas for $6 billion, the two companies announced on Wednesday, in the biggest takeover in the oil and gas industry this year.
The transaction â€" Devon’s biggest purchase in recent years â€" will give the independent driller operations that currently produce 53,000 barrels of oil equivalent a day and 82,000 acres in the Eagle Ford shale formation.
After a banner year for big takeovers last year, energy companies rapidly slowed their merger activity in 2013 as they focused on streamlining their operations.
But buying GeoSouthern’s holdings will bolster Devon’s position in one of the most popular fields in recent years. The smaller oil company was one of the first in the region, and has spent much of its time in recent years focusing on the Black Hawk field.
Devon pointed out that companies with big holdings in oil-rich shale fields like the Eagle Ford or the Bakken enjoy higher trading multiples than peers that are more concentrated in areas more laden with natural gas, which remains extremely cheap.
GeoSouthern’s assets have been largely explored and are ready to be fully developed, with Devon estimating their growth over the next several years at about 25 percent. By 2015, the holdings are expected to generate at least $800 million in annual free cash flow.
“We have considered many acquisition opportunities over the past few years, but none have met our stringent criteria,†John Richels, Devon’s chief executive, said in a statement. “Our patience and disciplined approach have culminated in this outstanding opportunity.â€
Shares of Devon were up 2.8 percent in early morning trading on Wednesday, at $64.54.
Devon will pay for the deal with existing cash and credit lines. The takeover is expected to close in the first three months of next year.
One of GeoSouthern’s investors is the Blackstone Group, which helped the company secure $1 billion in financing to develop its holdings in Black Hawk. Blackstone is expected to exit its investment through Wednesday’s sale.
Devon was advised by Morgan Stanley, Goldman Sachs and the law firm Skadden, Arps, Slate, Meagher & Flom. GeoSouthern was advised by Jefferies & Company and the law firm Simpson Thacher & Bartlett.
