Devon Energy and Crosstex Energy to Create New Midstream Business
Download
The combination of Devon’s and Crosstex’s extensive midstream systems,
including gathering and transportation pipelines, and processing,
fractionation and logistics assets, provides the
Under the terms of the definitive agreements, in exchange for a
controlling interest in both the new General Partner entity and the
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
“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
“The integration of Devon’s midstream assets with Crosstex provides the
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 theMaster 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 theBarnett 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 theNew 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, theNew 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 theNew 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, theNew Company will be positioned to capitalize on opportunities supporting Devon’s upstream growth needs. Furthermore, theNew Company is expected to have the opportunity to acquire additional Devon assets over time. Specifically, Devon has granted theNew 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 inCanada . - 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
Devon’s remaining 50% equity interest and the general partner interest
in
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
-
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
Headquarters, Directors and Management
Following the close of the transaction, the
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
Advisors
BofA Merrill Lynch acted as financial advisor and
Conference Call and Webcast
Devon and Crosstex will discuss this transaction today on a conference
call and webcast at
About the Companies
Additional Information and Where to Find It
This press release contains information about the proposed merger
involving a Devon entity and
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-controlling interest; 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
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
Source:
Devon Investor Contacts
Scott Coody, 405-552-4735
Shea Snyder,
405-552-4782
or
Devon Media Contact
Chip Minty,
405-228-8647
or
Crosstex Investor & Media Contact
Jill
McMillan, 214-721-9271