Devon Energy (NYSE: DVN) has hit on several potential acquisition opportunities over the past year. However, The company finally reached an agreement to its liking in Julyagreeing to buy Grayson Mill Energy for $5 billion. This highly accretive transaction is a strong strategic fit for the oil company.
The oil producer is working to close the deal by the end of the third quarter. Given that timeline, it should provide Oil stock with a lot of a momentum towards 2025. Here’s why he expects the deal to pay big dividends for investors in 2025 and beyond.
A perfect strategic fit
Devon Energy recently released its second quarter results and held a conference call with investors. The company Acquisition of Grayson Mill Energy was a key topic of conversation on the call. CEO Rick Muncrief said, “We also took important steps to strengthen the quality and depth of our asset portfolio with the accretive acquisition of Grayson Mill.”
The CEO stressed that,
These assets represent an excellent addition to our portfolio, fitting perfectly into our broader strategic framework aimed at accumulating resource and increase oil-weighted production in the best parts of major U.S. shale plays. Once the transaction is completed, Devon will be one of the largest oil producers in the United States with estimated average daily rates of approximately 375,000 barrels of oil per day. This transaction nearly triples our production and increases our inventory in the Williston Basin. At the current rate of development, we have approximately 10 years of inventory of the Bakken project.
The transaction significantly increases the scale of the company. It will add more than 300,000 acres and 100,000 barrels per day of high-margin production to the company’s operations in the Williston Basin. This increased scale will enable the company to realize $50 million in cash savings through operational efficiencies and marketing synergies. Grayson Mill also has a large midstream business, which will further improve its margins.
All ready for a strong 2025
“We see significant financial value created by this acquisition,” Devon’s CEO said on the conference call. The CEO added, “We expect sustainable accretion to earnings and free cash flow.” With the company purchase Considering the assets at good value, paying less than four times earnings and an estimated 15% yield on free cash flow at $80 per barrel, the acquisition will be accretive to its earnings, cash flow and free cash flow. Muncrief noted on the call that “with the acquisition of Grayson, we are now positioned to generate healthy double-digit growth both oil and free cash flow next year.”
Devon therefore expects return even more money to shareholdersThe deal will allow the oil producer to increase its share repurchase program by 67% to $5 billion. This will give it sufficient capacity to capitalize on share repurchase opportunities and generate healthy per-share growth in its key financial and operating metrics.
The CEO also said that we “expect the free cash flow from this acquisition to be…
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