11:01 AM EDT, 07/08/2024 (MT Newswires) -- Devon Energy ( DVN ) announced Monday that it will buy the Williston Basin business of EnCap Investments-backed Grayson Mill Energy in a $5 billion deal that is expected to expand Devon's oil production and drilling inventory.

The company will pay $3.25 billion in cash and issue 37 million shares of common stock valued at $1.75 billion to the sellers. The cash portion will be financed through a combination of cash on hand and debt. Shares of Devon fell 3.1% in Monday trade.

"The acquisition of Grayson Mill is an excellent strategic fit for Devon that allows us to efficiently expand our oil production and operating scale while capturing a meaningful runway of highly economic drilling inventory," Devon Chief Executive Rick Muncrief said in a statement.

The acquisition will add 307,000 net acres to Devon Energy's ( DVN ) position in the Williston Basin. On a proforma basis, the company estimates its oil production to average 375,000 barrels per day.

The transaction is expected to be immediately accretive to earnings and cash flow, according to the company. Devon expects to realize up to $50 million in average annual cash flow savings. It projects the acquisition to be accretive to its dividend payout beginning in 2025.

The assets were acquired at less than four-times earnings before interest, taxes, depreciation, amortization, and exploration expense, Devon said.

The transaction "creates immediate value within our financial framework by delivering sustainable accretion to earnings and free cash flow that will result in higher distributions to shareholders over time," Muncrief said. The company plans to allocate up to 30% of its annual free cash flow towards reducing $2.5 billion of debt over the next two years.

The transaction is expected to close by the end of the third quarter of 2024, pending closing conditions, including purchase price adjustments. After close, Devon said it will provide an update to its 2024 guidance. EnCap and Grayson Mill did not respond to MT Newswires' request for comment.

Devon's board increased its stock buyback plan by 67% to $5 billion through mid-year 2026.

Price: 45.62, Change: -1.41, Percent Change: -3.00