Devon (and Skye) strike again
This morning, and on the heels of their acquisition of RimRock in the Bakken, Devon announced that it will buy Validus Energy in the Eagleford for $1.8 billion in cash. Oh, how the fortunes have turned for oil and gas companies in the last 18 months.
Validus, Skye Callantine’s most recent success (following the Felix 1 and Felix 2 sales in 2015 and 2020, ironically to Devon and WPX who Devon also purchased) bought the asset from “the artist formerly known as Encana” (I still can’t call them that other name) in May of 2021 for $880 million. A 2x + return in 15 months is pretty good but goes to show you, in this business timing is everything and commodity prices matter A LOT.
“Accretive, accretive, Tier 1, efficiencies of scale and best in class” buzz words aside, the deal makes sense if one compares the relative value of buying back Devon stock versus rolling in Validus at “2x cash flow”, despite appearing expensive at face value. Consolidation must continue as inventory declines and ESG pressure/windfall profits tax calls increase, and I expect we will see a number of blockbusters in the coming months. But to me through this deal, one must recognize the brilliance of Skye who, alongside John Sellers and Cody Campbell of Double Eagle, have redefined what it is to be a company builder in the last decade. It’s bloody impressive. Too bad they aren’t running the country. Competence is sorely missed elsewhere.