Energy, Energy Service, Natural Gas & Oil Sectors: Devon acquires Mitchell

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Mitchell was acquired, at about $60.50 per share, near its all time high of $63

Devon Energy to Acquire Mitchell
In $3.1 Billion Cash-and-Stock
Deal

By ROBIN SIDEL and CHIP CUMMINS
Staff Reporters of THE WALL STREET JOURNAL

Devon Energy Corp., continuing an acquisition spree that
has more than doubled its size in just a few years, agreed
to buy Mitchell Energy & Development Corp. for $3.1
billion in cash and stock.

Boards of both companies approved the deal, which was
announced Tuesday. Devon is also expected to assume
$400 million in Mitchell debt.

The acquisition marks the latest in a rash of deals in the
natural-gas sector, which saw prices rally late last year
only to fall sharply in recent months on concerns of a
supply glut.

Buying Mitchell will make Devon the second-largest
independent producer of natural gas in the U.S. behind
No. 1 Anadarko Petroleum Corp., up from its current No.
4 position. With the deal, Devon will get access to
Mitchell's large gas reserves in Texas, increasing its
North American reserve base by 36%. Nearly all of
Mitchell's production is in Texas, and 70% of that is
natural gas.

The deal unites two oil and natural-gas exploration
companies still led by the original families that began
their businesses decades ago in the heart of the nation's
energy patch. George P. Mitchell, who now owns 46%
of the company in which he first bought a stake in the
mid-1940s, also made a name for himself in Texas real
estate in the 1970s with the construction of a huge
residential and commercial planned community outside
Houston called The Woodlands.

Under terms of the deal, Devon will pay $31 in cash and
0.585 of its shares for each of Mitchell's 51.7 million
shares outstanding. That equates to a price of $60.40 a
share, representing a 32% premium over Mitchell's
trading price of $45.65, up 68 cents, as of 4 p.m.
Monday in composite trading on the New York Stock
Exchange. Mitchell's stock hit a 52-week high of $64 in
late December but has since declined along with gas
prices. Shares of Devon were at $50.26 a share, up 47
cents, as of 4 p.m. in composite trading Monday on the
American Stock Exchange.

The two companies produced a combined 1.4 billion
cubic feet of natural gas in the second quarter. Proven
reserves of the combined company will be 58% natural
gas, 32% oil and 10% natural-gas liquids.

Mr. Mitchell, 82 years old, and his family will hold a
9% stake in the merged company. The transaction doesn't
include any role for Mr. Mitchell, but his son, Todd, will
join the Devon board.

For Devon Chairman and Chief Executive Larry Nichols,
a former Washington, D.C., lawyer who founded the
company with his father in 1971, the deal marks the
latest in a spate of acquisitions that have boosted the
Oklahoma City company's reputation as an aggressive
corporate buyer.

Last year, Devon bought Santa Fe Snyder Corp. for $2.5
billion in a deal that followed on the heels of its
acquisitions of PennzEnergy Co. of Houston in 1999 and
Northstar Energy Corp. of Calgary, Alberta, in 1998.

In May, Devon was one of several companies that made
an offer for Denver producer Barrett Resources Corp.,
which was the target of an unsolicited bid from the huge
Anglo-Dutch concern Royal Dutch/Shell Group.
Williams Cos. edged out Devon and won the auction.

About 75% of Devon's proven reserves are in North
America, including the valuable Rocky Mountain region,
and it also has operations in Azerbaijan, Southeast Asia,
South America and West Africa.

For Mitchell, the transaction marks the conclusion of the
company's recent flirtation with a sale. Mr. Mitchell put
it up for sale at the end of 1999, but took it off the
auction block a few months later and said it planned to
stay independent.

In recent months, Mitchell has boosted its
capital-spending plan to $685 million, nearly double its
2000 spending plan. The added drilling has led to big
gains in proven reserves for Mitchell, especially in the
Barnett Shale, a gas-rich location just a few miles north
of the Dallas-Forth Worth area that Mitchell first started
drilling in the 1950s. Mitchell's proven reserves have
grown about 38% in the first six months of this year to
about 2.1 trillion cubic feet equivalent.

Last month, Mitchell said increased gas production and
higher realized prices resulted in earnings of $201
million for the first six months of the year, more than
double the $87.4 million it earned in the same period
last year. Revenue for the six-month period was $1.14
billion, up from $675.3 million last year.

The company is still based in The Woodlands, although
it sold the property for $543 million in 1997 to Crescent
Real Estate Equities Co. and a Morgan Stanley
real-estate fund. It sold the rest of its real-estate holdings
the following year.

The deal with Devon is expected to close in the fourth
quarter. As part of the deal, Devon plans to issue 30.2
million shares.

UBS Warburg, a unit of UBS AG, advised Devon, while
Mitchell was advised by J.P. Morgan Chase & Co. and
Goldman Sachs Group Inc.

-- posted by lcha