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15 Aug 2001
MOODY'S CONFIRMS Baa1 LONG-TERM AND PRIME-2 COMMERCIAL PAPER RATINGS OF DEVON ENERGY; OUTLOOK IS STABLE
$2.0 Billion of Securities Affected
New York, August 15, 2001 -- Moody's Investors Service confirmed the Baa1 senior unsecured rating and
Prime-2 commercial paper rating of Devon Energy Corporation and
its wholly owned subsidiaries following the company's announcement that
it would acquire Mitchell Energy & Development Corp. in a cash
and equity transaction valued at $3.5 billion (including
assumed debt). Ratings confirmed include the Baa2 senior unsecured
and Baa3 senior subordinated ratings of subsidiary Santa Fe Snyder and
the preferred stock rating of Baa3. Moody's also confirmed Mitchell
Energy's Baa2 rated senior notes based on our understanding that upon
completion of the merger Mitchell Energy will become a wholly-owned
subsidiary of Devon Energy, whereby Devon will not formally guarantee
those obligations. The acquisition is subject to shareholder approval
by both companies and Devon has already obtained the support of George
Mitchell, Chairman and CEO of Mitchell Energy, who controls
46% of the company's stock.
Devon's rating confirmation is based on the equity financing for a portion
of the purchase price, which will mitigate Devon's financial leverage,
and also on the production growth and cash flow benefits provided by the
Mitchell assets. The acquisition will enhance Devon's competitive
position as one of the industry's largest independent exploration and
production companies, with approximately 1.5 billion proved
BOE reserves, a pro-forma reserve life index of 9.2
years (proved), and a reserve and production strategy focused primarily
on North American natural gas.
Mitchell Energy has been showing strong reserve and production growth
as a result of its success with light sand fracturing technology in the
Barnett Shale in East Texas. These reserves will add a significant
new producing area to Devon's large natural gas portfolio and, with
projected annual production growth in the area of 20%, should
enhance Devon's combined production growth in the medium-term.
Mitchell will also provide a value-added midstream business in
gas liquids processing and marketing linked to the Barnett shale production.
The BOE purchase price of the proved reserves is approximately $6
per BOE, including 2.1 TCF equivalent of natural gas and
based on Devon's attribution of $800 million to $1 billion
of value to the mid-stream assets. The acquisition is being
financed through a combination of $1.6 billion in new debt
and about $1.5 billion of Devon equity. When combined
with $400 million of Mitchell's direct liabilities, Devon's
pro-forma balance sheet debt-to-capitalization of
42% will be at the high end of management's leverage target range.
Moody's expectation, and the basis for the rating confirmation and
stable outlook, is that Devon will continue to exhibit financial
conservatism, using free cash flow generated even under lower gas
price scenarios to reduce debt in the near to medium-term.
In addition, this view factors other elements of financial conservatism,
including the expected suspension of share repurchases until Devon's financial
leverage returns to lower levels.
Devon Energy Corporation is headquartered in Oklahoma City, Oklahoma.
Mitchell Energy & Development Corporation is located in the Woodlands,
Thomas S. Coleman
Senior Vice President
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
John C. Cassidy
Vice President - Senior Analyst
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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