Americas: Devon energy moves into deeper water, The

Global Finance, Apr 2003 by Platt, Gordon

CORPORATE FINANCING NEWS

MERGERS & ACQUISITIONS

Oklahoma City, Oklahoma-based Devon Energy agreed to merge with Ocean Energy of Houston,Texas, in a $5 billion stock-swap transaction.As a result, Devon Energy will become the largest US-based independent oil and natural gas producer.

Part of the rationale for the deal is that Devon's gas-focused North American assets will be complemented by Ocean's international and deepwater development and exploration projects.

With interests in 500 deepwater Gulf of Mexico blocks, Devon will be the largest independent deepwater Gulf leaseholder. It will also get Ocean's West African oil and gas activities, as well as its operations in Egypt, Russia, Brazil and Indonesia.

Analysts generally agreed that the merger is a good deal for Devon. "Without paying a significant premium, Devon will get a much-needed diversified portfolio of domestic and international assets with strong production growth over the next three to four years," says John Kartsonas, analyst at Standard & Poor's in New York.

Devon already has more than doubled in size in the past few years, following a string of acquisitions. In 2001 it bought Anderson Exploration of Canada for $3.4 billion and Mitchell Energy and Development of Texas for $3.1 billion.

Following its merger with Ocean, Devon will have about 2.2 billion barrels of oil equivalent proved reserves, with 84% in North America. Natural gas would account for two-thirds of production.

Larry Nichols, Devon's chairman, president and chief executive, says the deal will allow the combined company to use surplus cash flow to fund exploration projects that Ocean would not have been able to develop on its own.

Following the merger, Nichols will retain the positions of chairman and CEO. James Hackett, chairman, president and CEO of Ocean, will be named president and chief operating officer.