Devon Energy Corp. CEO J. Larry Nichols said Tuesday that it would have been “difficult, if not impossible” to get the type of acreage in Canada that Anderson Exploration Ltd. already held, and that was the main reason the Oklahoma City-based producer tried for months to acquire the company. Now that Anderson has agreed to be acquired for $4.6 billion, Devon is expected to become the leading North American independent, a post currently held by Anadarko Petroleum Corp.

Devon announced Tuesday it would acquire all of the outstanding common shares of Anderson for C$40 a share in cash and will assume about US$1.2 billion in debt, making the deal worth about US$4.6 billion. The acquisition also adds strength to Devon’s operations, which will boost its asset base from the Mackenzie Delta into the Rocky Mountains, down through the Texas Barnett Shale and into the Gulf of Mexico, said Nichols. It also will not change the company’s historic oil and gas mix, with two-thirds of its assets in gas, and one-third in oil. “This is a comfortable number for us,” he said.

In the acquisition, Devon acquires estimated proved reserves of 532 million boe and about eight million net undeveloped acres, and has allocated $680 million of the aggregate purchase price to Anderson’s undeveloped acreage and seismic data. Devon would increase its proved reserves by 35% to approximately 2 billion boe in the deal, and its North American reserves would increase to 87% of Devon’s worldwide reserves, giving it more North American oil and gas reserves than any other independent.

Devon’s North American gas production would increase to 2.2 Bcf/d, up from its current 1.6 Bcf/d. North American liquids production would increase to approximately 180,000 boe/d, up from 125,000 boe/d. The deal also complements Devon’s existing Canadian asset base in the Peace River Arch, Foothills and Northern Plains areas, with its Canadian reserves growing to 32% of the total company.

Anderson holds eight million net undeveloped acres in Canada, including six million in the Western Canadian sedimentary basin and two million acres in northern Canada with holdings in the Northwest Territories, the Yukon, the Mackenzie Delta and the Beaufort Sea.

The mega deal follows Devon’s agreement Aug. 14 to acquire The Woodlands, TX-based independent Mitchell Energy & Development Corp for $3.5 billion (see Daily GPI, Aug. 15). When both deals are completed as expected by the fourth quarter, Devon would become the largest independent oil and natural gas producer in North America. Devon and Mitchell expect to amend the preliminary joint proxy statement/prospectus that has been filed with the Securities and Exchange Commission to include the pro forma effects of the Anderson acquisition. However, neither the Mitchell nor the Anderson transactions are conditional upon each other.

“Expanding our presence in Canada has been an important objective for Devon,” said Nichols. “Anderson was at the top of our list of acquisition opportunities. J.C. Anderson has built an exceptional gas-weighted production platform with powerful exploration potential. Combining Anderson with our existing Canadian organization firmly establishes Devon in Canada.”

George P. Mitchell, CEO of Mitchell Energy and soon Devon’s largest shareholder, said he supported the Anderson acquisition, and said Devon would become the “pre-eminent North American independent.”

Nichols pointed out to analysts during a conference call that both Mitchell Energy and Anderson Exploration are “exceedingly well run” companies, with “very focused” operations, making the integration at the same time easier than if their operations were more spread out. Both Mitchell Energy and Anderson are concentrated in North America.

“If it was two U.S. companies at the same time, we probably would not do it,” said Nichols. However, he said, Devon had actually been pursuing Anderson before it began its chase for Mitchell Energy, but had been turned down until the Mitchell Energy deal was announced. “We didn’t do this deal (Anderson) in just two weeks,” said Nichols. “It’s been going on for months and months.”

Devon’s Canadian operations are conducted through its Calgary-based subsidiary, and Anderson’s operations will be merged with those operations. John Richels, CEO of the Devon Canadian office, said that he expected a “very smooth integration of Anderson’s staff and properties,” adding he anticipated a “great future for Devon in Canada.”

Anderson CEO J.C. Anderson said Devon’s offer reflected the “quality” of his operation, which he said has been the “most active exploratory driller in Canada. I believe the organization we have created will be in very good hands with Devon.”

Devon expects the Anderson acquisition to be accretive to reserves per share, production per share and cash margin per share, and dilutive to earnings per share in the near term. Anderson’s board of directors has unanimously approved the deal, and the tender offer is contingent upon receiving at least two-thirds of Anderson’s outstanding shares and other usual conditions. The agreement also provides that Anderson would pay Devon a non-completion fee of C$210 million (US$135 million) in certain circumstances. Anderson has agreed to not solicit other offers, but has reserved the right to respond to a superior proposal, if one is forthcoming.

Following the news Tuesday, Devon’s shares fell slightly, closing down about 5% to stand at $43.85. Devon closed on Friday at $46.27. Anderson’s stock, however, climbed more than 50% on the news, standing at C$39.61, up C$13.21 for the day. On Friday, Anderson closed at C$26.40.

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