Devon Energy and Crosstex Energy to Create New Midstream Business | Business Wire
Devon Energy and Crosstex Energy to Create New Midstream Business
OKLAHOMA CITY & DALLAS--()--Devon Energy Corporation (NYSE:DVN) (“Devon”), Crosstex Energy, Inc.
(NASDAQ: XTXI) and Crosstex Energy, L.P. (NASDAQ: XTEX) (collectively
“Crosstex”) today announced the signing of definitive agreements to
combine substantially all of Devon’s U.S. midstream assets with
Crosstex’s assets to form a new midstream business. The new business
will consist of two publicly traded entities: the Master Limited
Partnership and a General Partner entity (the “Master Limited
Partnership” and the “General Partner”, collectively “the New Company”).
The New Company is expected to have adjusted EBITDA of approximately
$700 million in 2014, before synergies. The transaction is expected to
be immediately accretive to both Crosstex and Devon. A name for the New
Company will be announced prior to the closing of the transaction.
The combination of Devon’s and Crosstex’s extensive midstream systems,
including gathering and transportation pipelines, and processing,
fractionation and logistics assets, provides the New Company with
diversification and scale, along with an enhanced liquids-oriented
growth profile. These assets are located in many of North America’s
premier oil and gas regions, including the Barnett Shale, Permian Basin,
Cana and Arkoma Woodford, Eagle Ford, Haynesville, Gulf Coast, Utica and
Marcellus. The New Company will have approximately 7,300 miles of
gathering and transportation pipelines, 13 processing plants with 3.3
Bcf/day of net processing capacity, 6 fractionators with 165 MBbl/day of
net fractionation capacity, as well as barge and rail terminals, product
storage facilities, brine disposal wells and an extensive crude oil
trucking fleet.
Under the terms of the definitive agreements, in exchange for a
controlling interest in both the new General Partner entity and the
Master Limited Partnership, Devon will contribute its equity interest in
a newly formed Devon subsidiary (“Devon Holdings”) and $100 million in
cash. Devon Holdings will own Devon’s midstream assets in the Barnett
Shale in North Texas, the Cana and Arkoma Woodford Shales in Oklahoma
and Devon’s interest in Gulf Coast Fractionators in Mt. Belvieu, Texas.
The Master Limited Partnership and the General Partner will each own 50%
of Devon Holdings. Current stockholders of Crosstex Energy, Inc. will
receive one unit in the General Partner entity for each share of
Crosstex Energy, Inc. they own, as well as a one-time cash payment at
closing of approximately $2.00 per share or $100 million in aggregate.
Devon’s contributed assets are valued at $4.8 billion in the transaction.
Devon, with its strong upstream development portfolio, will be the New
Company’s largest customer. Devon’s inventory of organic exploration and
development opportunities, combined with Crosstex’s other high-quality
third-party customers, provides the Master Limited Partnership a visible
path to long-term growth in distributable cash flow. Over time, the
potential exists for the General Partner to drop-down its 50% interest
in Devon Holdings to the Master Limited Partnership, further enhancing
growth for unitholders. Owners of the General Partner entity will
benefit from the increased capacity to pay dividends and the
acceleration of achievement of the highest-tier incentive distributions
through this transaction.
“The combined company’s midstream assets and expertise greatly
accelerate the value proposition of Devon’s previously announced
standalone master limited partnership in a manner that is highly
accretive to our shareholders,” said John Richels, Devon’s President and
Chief Executive Officer. “Additionally, this transaction provides Devon
a market-based valuation for these assets on a go forward basis.”
“The integration of Devon’s midstream assets with Crosstex provides the
New Company with greater operating leverage and strong sponsorship from
a leading North American exploration and production company,” said Barry
E. Davis, Crosstex’s President and Chief Executive Officer. “Indeed our
equity holders, customers and employees will benefit from a larger,
stronger company. The enhanced financial position will support both
existing and new growth projects, provide capacity for greater
distribution payouts, and is expected to result in a higher valuation of
our equity.”
Strategic Rationale
Immediate and meaningful value accretion for both Devon and
Crosstex equity holders –Both the Master Limited Partnership and
the General Partner will benefit from the increased capacity to pay
higher cash distributions and dividends to holders. As a result of the
transaction, the cash distributions per unit of the Master Limited
Partnership will exceed the highest incentive distribution tier. This
maximizes the value of the incentive distribution rights held by the
General Partner.
Increased scale and diversification – The transaction combines
Devon’s large Texas and Oklahoma midstream platform with Crosstex’s
positions in the Barnett Shale, Permian Basin, Eagle Ford,
Haynesville, Gulf Coast, Utica and Marcellus. The combination creates
a geographically diverse portfolio of midstream assets, a broad range
of predominately fee-based services, and an increasing focus on
liquids-based growth projects.
Strong sponsorship – Through its majority ownership in the New
Company, Devon is aligned with the interests of unitholders and
committed to the New Company’s success and ongoing growth. Devon will
dedicate nearly 800,000 net acres to the New Company in areas where it
expects to develop liquids-driven upstream opportunities. Fixed-fee
contracts and minimum volume commitments associated with Devon’s
midstream assets will also support the stability and growth of the New
Company’s future cash flows.
Enhanced financial strength – The New Company’s
investment-grade credit profile will provide access to low-cost
capital. This enhanced financial capacity better positions it to
secure and execute sizable organic development and acquisition
opportunities across the midstream value chain. The Master Limited
Partnership’s pro forma leverage will be approximately 2.1x
debt-to-EBITDA. Additionally, the New Company expects to achieve
operational and financial synergies of up to $45 million annually.
This includes approximately $20 million in cost savings and
approximately $25 million in financing savings, which the New Company
expects to achieve from reduced interest costs as a result of its
improved credit profile.
Improved cash flow stability – Fixed-fee contracts will account
for approximately 95% of the New Company’s estimated 2014 adjusted
EBITDA. The New Company’s cash flow stream is further stabilized by
the diversified industries represented in its customer base.
Enhanced growth outlook - The New Company’s strong financial
foundation will enable it to pursue additional opportunities over and
above the $1 billion of growth projects Crosstex currently has
underway. In addition to future greenfield projects, the New Company
will be positioned to capitalize on opportunities supporting Devon’s
upstream growth needs. Furthermore, the New Company is expected to
have the opportunity to acquire additional Devon assets over time.
Specifically, Devon has granted the New Company a right of first offer
with respect to Devon’s interest in Access Pipeline, a pipeline system
serving Devon’s growing thermal heavy oil production in Canada.
Cultural alignment and experienced leadership – Devon and
Crosstex have a long and successful history of working closely
together with a clear understanding of each company’s values, internal
processes and expectations. The combination brings together highly
skilled workforces and a senior management team with a significant
track record of creating value in the midstream industry.
Transaction Detail
The combination is structured to be a tax-free contribution. The new
General Partner entity will acquire all shares of Crosstex Energy, Inc.
in a one-for-one exchange. Upon closing of the transaction, Crosstex
Energy, Inc. stockholders will also receive a one-time cash payment of
approximately $2.00 per share, or $100 million in aggregate.
Simultaneously, 50% of the equity in Devon Holdings plus $100 million in
cash will be contributed to the new General Partner entity in exchange
for approximately 70% of the outstanding common units in the General
Partner entity. The common units to be received by Devon are valued at
$2.4 billion, based on the volume weighted average closing prices of
Crosstex Energy, Inc.’s shares for the 20 trading days prior to today’s
announcement.
Devon’s remaining 50% equity interest and the general partner interest
in Devon Holdings will be contributed to the Master Limited Partnership
in exchange for approximately 53% of the outstanding common units in the
Master Limited Partnership. The common units to be received by Devon for
the contribution of the remaining 50% of equity is valued at $2.4
billion, based on the volume weighted average closing prices of Crosstex
Energy, L.P.’s units for the 20 trading days prior to today’s
announcement.
Upon closing of the transactions, the pro forma ownership of the new
General Partner entity will be approximately:
70% - Devon Energy Corporation
30% - Current Crosstex Energy, Inc. public stockholders
Upon closing of the transactions, the pro forma ownership of the Master
Limited Partnership entity will be approximately:
53% - Devon Energy Corporation
40% - Current Crosstex Energy, L.P. public unitholders
7% - the new General Partner entity
The transaction, which is expected to close in the first quarter of
2014, is subject to approval by the stockholders of Crosstex Energy,
Inc., as well as customary regulatory approvals and closing conditions.
Crosstex intends to hold a special stockholder meeting as soon as
practicable. Stockholders representing approximately 22% of Crosstex
Energy, Inc.’s outstanding shares, including Blackstone/GSO Capital,
Crosstex Energy, Inc.’s largest stockholder, and certain members of
management and directors, have entered into voting agreements under
which they have agreed to vote their combined interest in favor of the
proposed transaction.
Headquarters, Directors and Management
Following the close of the transaction, the New Company will be
headquartered in Dallas, Texas, with a continued employee presence in
Oklahoma City.
The boards of directors of both Devon and Crosstex have unanimously
approved the transaction. Until the transaction has closed, Devon’s
midstream business and Crosstex will continue to operate as separate,
independent companies.
The newly constituted boards of directors for the General Partner entity
and the general partner of the Master Limited Partnership will each be
comprised of nine directors, including five members designated by Devon.
John Richels, President and CEO of Devon Energy Corporation, will act as
Chairman. The executive management team of the New Company will consist
of senior officers from both Devon and Crosstex, led by Crosstex’s Barry
E. Davis as President and CEO.
BofA Merrill Lynch acted as financial advisor and Vinson & Elkins LLP
acted as legal advisor to Devon. Greenhill & Co., LLC acted as financial
advisor and Baker Botts L.L.P. and Richards, Layton & Finger, P.A. acted
as legal advisor to Crosstex. Citigroup Global Markets Inc. acted as
financial advisor to Crosstex Energy, Inc. Evercore acted as financial
advisor and Potter Anderson Corroon LLP acted as legal advisor to the
Special Committee of the Crosstex Energy, Inc. board of directors.
Simmons & Company International acted as financial advisor and Morris,
Nichols, Arsht & Tunnell LLP acted as legal advisor to the Conflicts
Committee of the Crosstex Energy GP, LLC Board of Directors.
Conference Call and Webcast
Devon and Crosstex will discuss this transaction today on a conference
call and webcast at 9 a.m. Central Time (10 a.m. Eastern Time).
Institutional investors and analysts are invited to participate in the
call by dialing (877) 659-1807, or (702) 696-4908 for international
calls using conference ID: . Other interested parties, including
individual investors, members of the media and employees of Devon and
Crosstex are encouraged to participate via webcast. The webcast may be
accessed from Devon's home page at
or Crosstex’s home page at .
About the Companies
Devon Energy Corporation is an Oklahoma City-based independent energy
company engaged in oil and gas exploration and production. Devon is a
leading U.S.-based independent oil and gas producer and is included in
the S&P 500 Index.
Crosstex Energy, L.P., is an integrated midstream energy partnership
headquartered in Dallas, Texas, that offers diversified, tailored
customer solutions spanning the energy value chain with services and
infrastructure that link energy production with consumption. Crosstex
operates approximately 3,500 miles of natural gas, natural gas liquids
and oil pipelines, 10 natural gas processing plants and four
fractionators, as well as barge and rail terminals, product storage
facilities, brine disposal wells and an extensive truck fleet.
Additional information about Crosstex Energy, L.P. can be found at .
Crosstex Energy, Inc. headquartered in Dallas, Texas, owns the general
partner interest, the incentive distribution rights and a portion of the
limited partner interests in Crosstex Energy, L.P. as well as the
majority interest in E2, a services company focused on the Utica Shale
play in the Ohio River Valley. Additional information about Crosstex
Energy, Inc. can be found at .
Additional Information and Where to Find It
This press release contains information about the proposed merger
involving a Devon entity and Crosstex Energy Inc. In connection with the
proposed mergers, the new General Partner entity will file with the
Securities and Exchange Commission (SEC) a registration statement on
Form S-4 that will include a proxy statement/prospectus. Investors and
stockholders are urged to read the proxy statement/prospectus and other
relevant documents filed or to be filed with the SEC. These documents
(when they become available), and any other documents filed by Crosstex
or Devon with the SEC, may be obtained free of charge at the SEC’s
website, at .
In addition, shareholders will be able to obtain free copies of the
proxy statement/prospectus from Crosstex Energy, Inc. by contacting
Investor Relations by mail at Attention: Investor Relations, 2501 Cedar
Springs, Dallas, Texas, 75201.
Non-GAAP Financial Information
This press release contains non-generally accepted accounting principle
financial measures that Devon and Crosstex refer to as adjusted EBITDA.
Adjusted EBITDA is defined as net income plus interest expense,
provision for income taxes, depreciation and amortization expense,
impairments, stock-based compensation, (gain) loss on non-cash
derivatives, distribution from a limited liability company and
non- less gain on sale of property and equity in
income (loss) of limited liability company.
Devon and Crosstex believe this non-GAAP measure is useful to investors
because it may provide users of this financial information with a
meaningful comparison between current results and prior-reported results.
Adjusted EBITDA, as defined above, is not a measure of financial
performance or liquidity under GAAP. This measure should not be
considered in isolation or as an indicator of Devon’s, Crosstex’s or the
New Company’s performance. Furthermore, it should not be seen as a
measure of liquidity or a substitute for a metric prepared in accordance
with GAAP.
Participants in the Solicitation
Devon, Crosstex and their respective directors and officers may be
deemed to be participants in the solicitation of proxies from the
stockholders of Crosstex Energy, Inc. in respect of the proposed
transaction. Information regarding the persons who may, under the rules
of the SEC, be deemed participants in the solicitation of the
stockholders of Crosstex Energy, Inc. in connection with the proposed
transaction, including a description of their direct or indirect
interests, by security holdings or otherwise, will be set forth in the
proxy statement/prospectus when it is filed with the SEC. Information
regarding Crosstex Energy, Inc.’s directors and executive officers is
contained in its Annual Report on Form 10-K for the year ended December
31, 2012, which is filed with the SEC. Information regarding Devon’s
directors and executive officers is contained in its Annual Report on
Form 10-K for the year ended December 31, 2012, which is filed with the
Forward Looking Statements
This press release contains forward-looking statements within the
meaning of the federal securities laws. Although these statements
reflect the current views, assumptions and expectations of Devon’s and
Crosstex’s management, the matters addressed herein involve certain
risks and uncertainties that could cause actual activities, performance,
outcomes and results to differ materially than those indicated. Such
forward-looking statements include, but are not limited to, statements
about future financial and operating results, objectives, expectations
and intentions and other statements that are not historical facts. Factors
that could result in such differences or otherwise materially affect
Devon’s, Crosstex’s or the New Company’s financial condition, results of
operations and cash flows include, without limitation,(a) failure to
consummate the transactions due to unsatisfied closing conditions with
respect the transactions or failure to obtain regulatory approval for
the transactions, (b) the risk that the New Company will not be
integrated successfully or that such integration will take longer than
anticipated, (c) the possibility that expected synergies will not be
realized, or will not be realized within the expected timeframe, (d)
fluctuations in oil, natural gas and NGL prices, (e) the extent and
success of drilling efforts, as well as the extent and qualify of
hydrocarbon volumes produced within proximity of our assets, (f) failure
or delays by customers in achieving expected productions in their
projects, (g) competitive conditions in our industry and their impact on
our ability to connect hydrocarbon supplies to our assets, (h) actions
or inactions to or non-performance by third parties, including
suppliers, contractors, operators, processors, transporters and
customers, (i) our ability to consummate future acquisitions,
successfully integrate any acquired businesses, realize any cost savings
and other synergies from any acquisition, (j) changes in the
availability and cost of capital, (k) operating hazards, natural
disasters, weather-related delays, casualty losses and other matters
beyond our control, (l) timely receipt of necessary government approvals
and permits, our ability to control the costs of construction, including
costs of materials, labor and right-of-way and other factors that may
impact our ability to complete projects within budget and on schedule,
(m) the effects of existing and future laws and governmental
regulations, including environmental and climate change requirements,
(n) the effects of existing and future litigation and (o) risks related
to our substantial indebtedness, as well as other factors disclosed in
Devon’s and Crosstex’s filings with the Securities and Exchange
Commission. You should read Devon’s and Crosstex’s filings with the
Securities and Exchange Commission, including their respective Annual
Reports on Form 10-K for the year ended December 31, 2012 and their
Quarterly Reports for the quarters ended March 31, 2013 and June 30,
2013 and other filings made with the Securities and Exchange Commission.
Neither Devon nor Crosstex assumes any obligation to update these
forward-looking statements.
Devon Investor ContactsScott Coody, 405-552-4735Shea Snyder,
405-552-4782orDevon Media ContactChip Minty,
405-228-8647orCrosstex Investor & Media ContactJill
McMillan, 214-721-9271
Devon Investor ContactsScott Coody, 405-552-4735Shea Snyder,
405-552-4782orDevon Media ContactChip Minty,
405-228-8647orCrosstex Investor & Media ContactJill
McMillan, 214-721-9271