Oilman Jim's Letter - July 10, 2024

Devon Energy (DVN DY6.F) announced that it has entered into a definitive purchase agreement to acquire the Williston Basin business of Grayson Mill Energy in a transaction valued at $5 billion, consisting of $3.25 billion of cash and $1.75 billion of stock to the sellers. The transaction is expected to close by the end of the third quarter of 2024, with an effective date of June 1, 2024. The transaction is said to be immediately accretive to Devon’s key per-share financial measures, including earnings, cash flow, free cash flow and net asset value. The assets were acquired at less than 4-times EBITDAX, with an estimated free cash flow yield of 15 percent at an $80 WTI oil price. The acquisition adds a high-margin production mix that further positions Devon as one of the largest oil producers in the U.S. Pro forma for the transaction, the company estimates its oil production to average 375,000 barrels per day, with total production reaching an average of 765,000 oil-equivalent barrels per day across its diversified portfolio of assets.  With enhanced scale in the Williston basin, Devon expects to realize up to $50 million in average annual cash flow savings from operating efficiencies and marketing synergies. The acquisition also adds 500 gross locations and 300 high-quality refrac candidates. On a pro forma basis, Devon will possess an inventory life of up to 10 years in the Williston Basin at a constant development pace of three operated rigs. The acquired business also generates peer-leading operating margins in the Williston Basin that benefit from midstream infrastructure ownership in 950 miles of gathering systems, an extensive network of disposal wells and crude storage terminals. This midstream ownership creates a margin uplift of more than $125 million of EBITDAX annually and provides marketing optionality to capture higher pricing through access points to multiple end use markets. The transaction further improves the outlook for return of capital to shareholders. Due to the accretive nature to free cash flow, Devon’s board of directors has expanded its share-repurchase authorization by 67 percent to $5 billion through mid-year 2026. The company also expects this acquisition to be accretive to the company’s dividend payout in 2025 and beyond.

Zephyr Energy (ZPHR.L ZPHRF VD5N.F) announced commencement of the well production test on the State 36-2R LNW-CC well at the company's project in the Paradox Basin, Utah. The well is currently flowing both natural gas and condensate, and Zephyr says it is encouraged by initial results. Over the next two weeks, the well will be flowed and production tested to more rigorously determine the reservoir pressure, fluid composition, well flow rate and bulk reservoir permeability, and to deliver an early estimate of the overall potential recoverable resources. Initial results and analysis will be announced as soon as possible at the end of this two-week period, assuming no unexpected delays to the production test programme…more

Valeura Energy (VLE.TSX VLERF 83PN.F) announced an update on Q2 2024 operations. Oil production averaged 21,100 barrels per day and the company saw drilling success across the portfolio, including exploration success at Nong Yao D, production wells at Nong Yao A, and the start of development drilling at Nong Yao C. Revenue was $164 million with price realisations of $87.70/barrel, a record $2.70/barrel premium over Brent. The quarter closed with no debt and cash of $145 million, after having paid an aggregate $109 million in taxes, purchase of the Nong Yao floating storage and offloading vessel, and final contingent consideration associated with the asset acquisition from KrisEnergy (Asia)…more

Union Jack Oil (UJO.L UJOGF 1UJ0.F) announced that it has been informed by the operator, Reach Oil & Gas, that the Andrews 2-17 well, located in Seminole County, Oklahoma, has been spudded. Union Jack holds a 45% working interest in the Andrews 2-17 well, which has an operator estimated geological chance of success of around 80%. Drilling time is approximately eight days to a depth of around 4,700 feet. Thereafter, completion is expected to take approximately a further eight days including perforating and flow-back if successful. 2-17 is an up-dip offset well to Andrews 1-17, which is expected to encounter a similar reservoir above the oil/water contact seen in the first well. On success, the 2-17 well will share common production facilities with the Andrews 1-17, thereby lowering costs and optimising project economics. Union Jack is paying its pro-rata 45% share of well costs (around $340,000) from the company's existing cash resources. Back in the UK, Union Jack announced that Wressle revenues now exceed $20 million, net to the company. The most productive phase of development, the material Penistone Flags formation, potentially awaits…more

Pulsar Helium (PLSR.V PSRHF Y3K.F) announced an update on progress at its 100% owned Topaz helium project in Minnesota. Interpretation of a 2D seismic sweep shows a seismic reflector at a depth coincident with the helium bearing zone intersected in Jetstream #1, and additional reflectors with similar characteristics at greater depth. The positive result is said to highlight 2D seismic reflection as an efficient exploration tool and supports the larger 2D seismic survey scheduled for July. This will provide regional high-resolution data to complement the existing passive seismic and airborne gravity gradiometry data. The combination of this data will be used to assist the placement of step out wells from Jetstream #1. Pulsar has also received processed AGG, magnetic and Lidar data from an infill survey flown in May covering an area of 190 square kilometres which is now ready for interpretation. When combined with the AGG data acquired in 2022, the survey has a combined resolution of 150 metre line spacing. All technical data for Topaz has been transferred to Sproule International, which is expected to publish an updated resource calculation this month…more

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