Devon Energy and Crosstex Energy to Create New Midstream Business

  Devon Energy and Crosstex Energy to Create New Midstream Business

Business Wire

OKLAHOMA CITY & DALLAS -- October 21, 2013

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.

Advisors

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:
86781301. 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
www.devonenergy.com or Crosstex’s home page at www.crosstexenergy.com.

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 www.crosstexenergy.com.

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
www.crosstexenergy.com.

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 www.sec.gov. 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-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
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 SEC.

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.

Contact:

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
 
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