Devon nears $6bn deal for GeoSouthern
Devon Energy is close to buying GeoSouthern Energy in a $6bn deal that will accelerate the US group’s shift away from gas and into more lucrative oil production, according to people familiar with the situation. The purchase of its smaller rival will give Devon, which has a market capitalisation of more than $25bn, significant exposure to the Eagle Ford shale formation in south Texas, one of the heartlands of the US oil boom of the past four years.
Devon operates one of the largest exploration and production businesses in North America, averaging output of 691,800 barrels of oil equivalent per day in the first nine months of the year. GeoSouthern, based near Houston, was the largest privately held US producer of oil and related liquids in the first half of this year, according to IHS data, rising from fourth place last year. It is a leading producer in the Eagle Ford shale, with leases in the region’s most productive areas. The acquisition of GeoSouthern, whose investors include private equity group Blackstone, would mark Devon’s second deal in as many months. In October, it agreed to combine the bulk of its US pipeline and processing assets with those of Crosstex Energy to form a new midstream business. The deal extends Devon’s strategy to cut its reliance on natural gas production, which has been hit by a collapse in prices over the past five years. The company has been reallocating resources away from gas and into oil and natural gas liquids such as ethane, which account for just 40 per cent of the group’s output by energy content but about 60 per cent of its revenues from production. The acquisition could also redeploy some of the $4.3bn in cash that Devon holds, $3.6bn of it offshore, following the sale of its international and Gulf of Mexico businesses in 2010. Devon said in a call with analysts earlier this month that it expected to be able to bring $2bn of that cash into the US at a highly favourable tax rate of just 4 to 6 per cent before the end of the year. Devon’s shares rose 5 per cent to $62.77 after the news emerged of the prospective deal, which was first reported by the Wall Street Journal. Devon and Blackstone refused to comment. GeoSouthern did not respond to requests for comment.