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Devon Energy

(DVN) - Get Devon Energy Corporation Report

, it's back to the head of the class.

Little more than a year after losing its status as the nation's largest independent oil and gas producer, the fast-growing Oklahoma City-based company unveiled yet another deal, this one aimed at catapulting it back to the top of the heap.

The company announced plans Sunday to purchase rival

Ocean Energy

(OEI)

for $3.5 billion in stock. The big-ticket purchase is the latest in a long string for Devon, which has more than doubled in size over just a few years.

Analysts praised the agreement, noting that Devon will pay only a small premium to Ocean's recent trading price and that the combined company will carry a proportionally lighter debt load. Investors concurred, sending shares of both companies up modestly in midday trading.

Price Is Right

Launched two decades ago as a modest energy player, Devon has exploded in recent years by snatching up bargain-priced companies when times grow lean. The company's newest deal looks particularly attractive, since it requires Devon to pay almost no premium for Ocean. Including $1.8 billion in assumed debt, Devon is paying a total of $5.3 billion. That translates into $19.97 a share -- or just 70 cents a share more than Ocean's latest closing price.

Jon Cartwright, a senior bond analyst at Raymond James, has predicted an upcoming flurry of all-stock mergers in the sector. But he was surprised to see such a big deal announced so early in the year.

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Cartwright described both Devon and Ocean as solid companies that should grow even stronger by joining forces.

"If Devon remains true to its nature, it should wring out more synergistic cost savings than expected over the next 12 months," said Cartwright, who has no position in either stock. "And this time next year, the combined company could be looking at a

credit rating upgrade."

Both companies have investment-grade ratings already.

Devon first became the nation's largest independent after pulling off two multibillion-dollar acquisitions around the end of 2001. It lost that ranking after a series of acquisitions by its peers and the sale of some of its own assets.

Following news of the deal, Ocean's stock added 90 cents to $20.17 in heavy volume. Devon, also trading heavily, rose 36 cents, to $48.59.

Getting Bigger

In a prepared statement Monday, Devon declared the deal a "win-win transaction" for all players involved. Ocean chimed in to agree.

"As part of a much larger organization, our shareholders will benefit from the superior access to capital necessary to accelerate key exploration and development opportunities," said Ocean CEO James Hackett.

The combined company will have 2.2 billion barrels of oil equivalent in proved reserves, and the ability to produce 653,000 barrels of oil equivalent a day. Almost all of that production is in North America.

Together, Devon and Ocean will create a company with an enterprise value of roughly $20 billion. They expect to generate at least $50 million in merger-related savings.

Following the deal, Devon will retain its name and keep J. Larry Nichols as its chairman and CEO. Hackett will become president and operating chief of the larger company.

Devon plans to finance the deal by issuing 72.4 million shares -- equal to roughly half the stock Devon currently has outstanding. It will emerge with a more comfortable debt structure, however. Devon's debt-to-capitalization ratio, currently at 61%, will drop to 52% if the deal goes through as planned.