Devon Energy Corp. agreed Sunday to merge with Houston-based Ocean Energy Inc. in a deal that will create the nation's largest independent oil and natural gas producer and the state's largest publicly traded company.
The new company will retain Devon's name and Oklahoma City headquarters and is expected to be worth more than $20 billion.
The directors of both Devon and Ocean approved the merger Sunday, but the deal is subject to approval by the U.S. Securities and Exchange Commission and the shareholders of both companies.
Devon's Larry Nichols will remain chairman and chief executive, and Ocean's James T. Hackett will relocate to Oklahoma City and become the new company's president and chief operating officer.
Devon employs about 700 people in Oklahoma City and 3,000 worldwide. Ocean employs about 1,000 worldwide.
"The combined company has a significantly improved financial statement, has a much more exciting growth potential and has better balance between exploration and exploitation," Nichols said Sunday. "Our relative strengths and weaknesses complement each other. Both are much stronger together than when they are apart."
The deal is expected to save the companies at least $50 million annually in general and administrative costs, the companies said.
The $5.3 billion merger is Devon's third major transaction in less than two years. The Oklahoma City company acquired Canada-based Anderson Exploration Ltd. in October 2002 for $4.6 billion and bought Houston-based Mitchell Energy & Development Corp. for $3.5 billion in January 2002.
"All companies that have had successful growth in our industry have used a dual strategy of drilling and strategic mergers," Nichols said. "The large companies have combined together to make better companies."
While Devon continues to grow, Nichols said Oklahoma City is still able to serve his company's needs.
"The headquarters of Devon has been in Oklahoma City for 32 years. There is no need to change it," he said.
Hackett said the merger provides longer-term growth.
"Being the smaller company, we looked at our options, and we think this is clearly the home run that is out there for our investors," he said.
The new company is expected to produce 653,000 barrels of oil equivalent a day, making Devon the largest U.S.-based independent oil and natural gas producer. About 90 percent of the production is in North America.
The company is expected to have 2.2 billion barrels of oil equivalent in proved reserves with 84 percent in North America.
"The merger dramatically increases our exposure to the Gulf of Mexico and gives us a significantly expanded presence internationally and strengthens our balance sheet," Nichols said. "It also dramatically increases our ability to grow production."
The transaction is expected to give the new company a comfortable 52 percent debt-to-capitalization ratio.
Devon will issue 72.4 million new shares to Ocean sharehold ers, who will receive 0.414 shares of Devon common stock for each common share of Ocean. Based on Devon's closing stock price of $48.23 a share on Friday, the company will issue more than $3.5 billion worth of new shares.
Devon also will assume about $1.8 billion of Ocean's debt and other obligations, putting the total value of the transaction at $5.3 billion.
The merger plans will be submitted to the Securities and Exchange Commission. If the SEC decides not to review the merger, the deal is expected to close in early May. If a review is ordered, the closing date will be delayed.Archive ID: 1181186