Devon Energy and WPX Energy announced Monday that they have agreed to combine to become the third-largest unconventional energy company in the U.S.
Valued at $12 billion, the all-stock merger-of-equals transaction will give Devon shareholders about 57% of the new company with WPX shareholders holding 43%.
Kirkland counseled WPX from Dallas and Houston. Devon Energy was advised by a Skadden, Arps, Slate, Meagher & Flom, with a team that included a few Texas lawyers.
The Kirkland team was led by transactional partners Sean Wheeler, Debbie Yee, Kevin Crews, Melissa Kalka and Cephas Sekhar and associates Zach Savrick and Andrew Lombardo; executive compensation partners Rob Fowler and Stephanie Jeane; tax partner David Wheat; transactional partners Anthony Speier and David Castro and associate Lindsey Jaquillard; capital markets partner Michael Rigdon; debt finance partners Will Bos and Kimberly Perdue and associate Shan Khan; environmental transactions partner Paul Tanaka; antitrust and competition partner Carla Hine; employee benefits partner Melissa Grim; labor and employment partner R.D. Kohut; and energy regulatory partner Brooksany Barrowes.
WPX Energy has been a long-time client of Kirkland & Ellis. In 2019, Kirkland represented WPX in two significant strategic joint ventures, a minerals joint venture and a non-op joint venture, both of which were led by transactional partners Crews, Speier and Castro, who are part of the Kirkland team advising WPX on the Devon merger.
The Skadden team included M&A partner Frank Bayouth (Houston), counsel Anthony Saldana (Washington, D.C.), and associates Jenna Godfrey (Washington, D.C.), Marc-Anthony Delgado (Houston) and Nicholas Woodruff (Houston); antitrust/competition partner Kenneth Schwartz (New York); environmental counsel Elizabeth Malone (Washington, D.C.); executive compensation & benefits partner Erica Schohn (New York) and counsel Michael Bergmann (Washington, D.C.); intellectual property & technology partner Jose Esteves (New York/Palo Alto); labor & employment law partner David Schwartz (New York); and tax partner Sally Thurston (New York) and counsel Trevor Allen (New York).
Vinson & Elkins advised EnCap Investments on the merger with the team led by Matt Strock and Doug McWilliams. EnCap owns about 27% of WPX. EnCap has already approved the transaction.
The deal includes 400,000 acres in the Delaware Basin as well as a pro forma net debt-to-EBITDAX ratio of 1.6x on a trailing 12-month basis and is targeting a leverage ratio of approximately 1.0x over the longer term. The combined company will also have approximately $1.7 billion of cash on hand and $3 billion of undrawn capacity on its credit facility expected at closing.
The strong balance sheet, according to the companies, will allow a “fixed plus dividend strategy” which will begin with the close of the transaction expected during the first quarter of 2021. The fixed dividend is paid quarterly at a rate of $0.11 per share and the target payout is approximately 10% of operating cash flow.
In addition to the fixed quarterly dividend, up to 50% of the remaining free cash flow on a quarterly basis will be distributed to shareholders through a variable distribution. This enhanced dividend strategy is effective immediately upon close of the transaction.