Energy Prospectus

Devon Energy (NYSE:DVN) said Tuesday it agreed to acquire Eagle Ford shale operator Validus Energy for $1.8B in cash.

Devon (DVN) said the acquisition secures a premier acreage position of 42K net acres (90% working interest) adjacent to the company's existing Eagle Ford leasehold.

Validus' current production is ~35K boe/day (70% oil), with volumes expected to increase to an average of 40K boe/day over the next year.

A good friend likes the deal so going price is 3.3 x. Dan should we cut valuations from 5-6 times OCF to 3.3? 3.3 is the current going price

Immediately accretive to financial metrics – The transaction is attractively valued at 2-times cash flow, with a free cash flow yield of 30 percent

I will circle back to Devon later this month. I have a lot more forecast models to update and six Sweet 16 profile updates sitting here for my review.

DVN, CTRA, FANG and PXD have all been moved from the Sweet 16 to the High Yield Income Portfolio. They all deserver valuations of at least 6X operating cash flow because they all have very strong balance sheet, lots of running room and they are generating stunning amounts of free cash flow.

I forgot about that, well DVN will be getting even better. I dont own it , yet

I have followed Devon for close to 20 years. It is an American Success Story, rock solid with lots of running room. When I left Hess in early 2002, I interviewed for a division controller job at Devon in Oklahoma City. They gave the job to a much younger man, which turned out great for me because I prefer working for my current boss (me).

SBOW had very positive comments about the Eagleford play. EOG and SM seem to be be the leaders there for both oil and gas. there are many private companies which will be acquired. I think SBOW is the smallest of the public companies. Probably worth comparing the metrics on the Sundance merger with the DVN deal.

SBOW is the smallest company in the Sweet 16 based on their market-cap which is just under $1 billion.

I cover some much smaller companies in the Small-Cap Growth Portfolio.