Devon Energy: Deleveraging Is The Top Priority
Richard Zeits • 11 Comments
Richard Zeits • 11 Comments
Devon Has Come A Long Way, But Doesn't Seem Done Yet
Stephen Simpson, CFA
Stephen Simpson, CFA
Mon, Jul. 18, 3:58 PM
- Pioneer Natural Resources (PXD +0.1%), EP Energy (EPE +0.9%), Carrizo Oil & Gas (CRZO +2.8%), Sanchez Energy (SN +2.5%) and Synergy Resources (SYRG -0.1%) are all upgraded to Buy at KLR Group in advance of Q2 earnings reports.
- At the same time, the firm downgrades Devon Energy (DVN -0.4%), Consol Energy (CNX -1.3%) and Continental Resources (CLR +0.4%) to Accumulate from Buy on valuation given their substantial share price appreciation over the past four months.
- KLR expects the U.S. E&P industry's cost intensity to decline another 10% this year as capital spending is rationalized another 45%, but it anticipates spending ultimately will increase ~70% "assuming a substantive recovery in commodity prices."
- The firm's new stock price targets are $218 for PXD, $6.50 for EPE, $49 for CRZO, $9 for SN, $9 for SYRG, $44 for DVN, $20 for CNX and $54 for CLR.
Thu, Jul. 14, 7:15 AM
- Devon Energy (NYSE:DVN) agrees to sell its 50% ownership stake in Access Pipeline to Wolf Midstream for C$1.4B (US$1.1B), confirming earlier reports.
- The agreement also includes the potential for a C$150M payment based on the development of a new thermal oil project on DVN’s Pike lease in Alberta.
- DVN says the sale marks the completion of its divestiture program, with proceeds of $3.2B surpassing the top end of its $2B-$3B guidance range.
- Wolf is a portfolio company of the Canada Pension Plan Investment Board, the country's largest pension plan.
Tue, Jul. 12, 2:11 PM
- Wolf Infrastructure, the midstream oil and gas company backed by Canada's largest pension plan, is near a deal to buy Devon Energy’s (DVN +6.5%) 50% stake in the Access Pipeline in western Canada, Bloomberg reports.
- The deal values DVN’s stake in the pipeline at as much as C$1.5B ($1.2B) and could be announced as early as his week, according to the report; MEG Energy (OTCPK:MEGEF), DVN’s partner in the pipeline, also is said to be trying to find a buyer for its 50% stake.
- A deal would mark the third purchase in a month for Canada pension-backed companies in western Canada, as oil and gas companies look to shore up their balance sheets amid the current commodities price rout.
Tue, Jul. 5, 3:18 PM
- Devon Energy (DVN -3.7%) is reiterated with a Buy rating but at a raised $45 price target, up from $41, at Deutsche Bank, which views DVN as holding one of the deepest, highest quality, and still underappreciated asset portfolios among its E&P coverage.
- While the market has wrestled with the overhang of debt and legacy cost structure, Deutsche Bank believes that DVN's better than expected execution on asset sales, peer-leading leverage to the next $10/bbl move in crude and advantaged exposure to the Delaware Basin and STACK provide a visible, revisions-driven path toward the firm's eventual bull case for the shares at $69.
Thu, Jun. 30, 6:38 PM
- The number of earthquakes in Oklahoma has fallen 25% YTD from a year ago, a decline attributed in part to actions by state regulators to restrict the oil and gas industry’s practice of pumping wastewater from its operations deep underground.
- More than 2,700 temblors of magnitude 2.5 or higher occurred in Oklahoma last year, according to the U.S. Geological Survey; the state experienced 1,097 quakes of similar magnitude in the first six months of this year, down from ~1,400 over the same period in 2015.
- Oklahoma's leading oil and gas producers include CLR, CHK, DVN, MRO, NFX and XEC.
Mon, Jun. 20, 2:25 PM
- Marathon Oil (MRO +10.4%) powers higher after snapping up P-E-backed PayRock Energy for $888M, increasing its footprint in Oklahoma's prolific STACK oil play.
- MRO expects internal rates of return for the new addition of 60%-80% before taxes at a WTI price of $50/bbl.
- CEO Lee Tillman says MRO would ratchet up drilling activity if crude prices held above $50/bbl for a while, and that the Oklahoma oil region is profitable enough that it can compete for capital against the company’s other oil plays.
- SunTrust analysts consider ~60% of Payrock’s position to be in the core STACK, and estimates the core acreage value at ~$15K/acre, which appears in line with recent transactions.
- The firm also thinks MRO's move is good news for core STACK players Newfield Exploration (NFX +0.5%), Cimarex Energy (XEC +1.3%), Continental Resources (CLR +1.2%), Devon Energy (DVN +4.6%) and Chesapeake Energy (CHK +3.3%).
Wed, Jun. 15, 6:19 PM
- In addition to selling assets in the northern Midland Basin to Pioneer Natural Resources for $435M, Devon Energy (NYSE:DVN) says it is also selling assets in the southern Midland Basin for another $423M to an unidentified buyer.
- DVN says the combined $858M in deals brings its announced planned divestitures of non-core assets to $2.1B, and expects its “total non-core asset sales to be at or above the top end of our $2B-$3B guidance, with the sale of our 50% interest in the Access pipeline."
- The northern Midland assets produce 1K boe/day (70% oil), while the southern Midland assets produce 22K boe/day (33% oil) and have proved reserves of 43M boe.
- DVN now expects FY 2016 upstream capital spending of $1.1B-$1.3B, up $200M from previous guidance, and raising full-year production guidance from core assets to 540K-560K boe/day, up 7K boe/day from prior guidance.
Wed, Jun. 15, 5:32 PM
Wed, Jun. 15, 4:53 PM
- Pioneer Natural Resources (NYSE:PXD) agrees to acquire ~28K acres in the Midland Basin for $435M from Devon Energy (NYSE:DVN), an increases its FY 2016 capital spending outlook to $2.1B from $2B.
- PXD says current net production in the acreage is ~1K boe/day (~70% oil), and expects before-tax internal rates of return on the wells to exceed 50%.
- PXD says the acquisition and its improving outlook for oil prices enable it to increase its horizontal rig count in the northern Spraberry/Wolfcamp to 17 rigs from 12, with the first rig to be added this September and two rigs added in each of October and November.
- Based on running 17 rigs during 2017, PXD expects to deliver a production growth rate of 13%-17% in that year, with Spraberry/Wolfcamp area production growth of 28%-32%.
- To fund the deal, PXD announces a public offering of 5.25M common shares, with an underwriters option to purchase up to an additional 787.5K shares; shares -2.5% AH.
Mon, Jun. 13, 7:17 PM
- Devon Energy (NYSE:DVN) rose 2% in today's trade after BMO analysts reiterated their Outperform rating and boosted its stock price target to $40 from $35, viewing DVN's North American asset base as "top-tier among large-cap E&Ps with core positions in the STACK, Delaware Basin, Eagle Ford, and heavy oil development.
- The analysts update their estimations for DVN after the last week's news that it sold nearly $1B of non-core upstream properties, and believe the company is on target to achieving its $2B-$3B monetization target since it has already achieved $1.3B.
- The firm says balance sheet healing, cost structure right-sizing, efficiency gains, and well productivity improvements position DVN well for crude oil's eventual upturn.
Mon, Jun. 13, 2:45 PM
- Plenty of upside remains in E&P names even after sharp YTD gains, Morgan Stanley analysts say amid confidence that the oil market recovery is occurring and oil prices will need to hit $80/bbl or so to deliver the production growth the world will need.
- Given recent production outages, the firm sees a risk of an H2 pullback yet also a long-term recovery that is "the bigger and a higher conviction event in a low conviction world and we add risk, yet not go 'all-in' here."
- Stanley upgrades Concho Resources (CXO +0.1%) and Cenovus Energy (CVE +0.9%) to Overweight from Equal Weight, and says it also remains positive on Pioneer Natural Resources (PXD +0.6%), Devon Energy (DVN +2.4%), Continental Resources (CLR +1.7%) and Cimarex Energy (C -0.8%); the firm cuts Occidental Petroleum (OXY -0.3%) to Equal Weight from Overweight on relative value.
Wed, Jun. 8, 11:32 AM
Tue, Jun. 7, 1:08 PM
- Devon Energy's (DVN +2.2%) sale of nearly $1B in non-core assets located in the Granite Wash and east Texas areas and the Midland Basin brings the total assets sold to ~$1.3B of the company’s $2B-$3B asset sale goal, and Wunderlich analysts believe DVN has now sold some of its difficult-to-divest assets much more quickly than expected.
- Before the latest sale news, the firm thought the Access Pipeline deal would be announced within the new few weeks followed by other tougher asset sales around July and August, so it now feels even more confident that the remaining Midland asset sales will get done.
- The latest asset sales were gassy, but Wunderlich says the Midland Basin production still to be sold is 50% oil, which should command higher pricing; also, DVN should have little trouble selling 15K net acres in Martin County, and DVN's data room is active with participants even in areas with fewer transactions comps.
Mon, Jun. 6, 7:41 AM
- Devon Energy (NYSE:DVN) agrees to sell $974M of non-core upstream assets in east Texas, the Anadarko Basin, and a royalty interest in the northern Midland Basin to undisclosed buyers.
- DVN says the largest transaction is for reserves in east Texas for $525M, and is divesting its non-core position in the Anadarko Basin's Granite Wash area for $310M; In the northern Midland Basin, DVN is selling its overriding royalty interest across 11K net acres for $139M.
- DVN also says it is in advanced talks to sell its 50% interest in the Access Pipeline in Canada, and expects an announcement within the next several weeks.
Tue, May 24, 5:27 PM
- Devon Energy (NYSE:DVN) is a premium company available to investors at a discount, delivering top-tier returns as it improves its balance sheet, Barclays says as it reiterates an Overweight rating and raises its price target to $38 from $34.
- Barclays admires DVN's asset quality, as acquisition of world-class assets in the Eagle Ford and STACK during the past two and a half years, plus its 500K-acre Delaware Basin asset, gives the company strong positions in three first-class unconventional plays, plus a "supporting cast” that includes assets in the liquids-rich Woodford play, the Powder River Basin and heavy oil assets in Canada.
- The firm also says DVN’s 90-day initial production rates improved from middle of the pack in 2012-13 to #1 in 2015, reflecting real improvement in the company’s delivery that likely will drive a rising relative multiple as perceptions catch up to reality.
Wed, May 18, 12:45 PM
- The Oklahoma Senate has passed a bill suspending a tax incentive for the oil industry that OilPrice.com thinks will force many smaller producers out of business.
- Oklahoma lawmakers voted to eliminate a rebate for the worst-performing wells in order to help plug a $1.3B budget gap; while barely utilized during the boom years, the cost of that tax credit grew to more than $130M last year as sinking prices made more wells unprofitable.
- Oklahoma's leading oil and gas producers include CLR, CHK, DVN, MRO and NFX.
Devon Energy Corp. is an independent energy company, which is engaged primarily in exploration, development and production of oil, natural gas and natural gas liquids. Its operations are concentrated mainly in Canada and the United States. It also owns natural gas pipelines, plants and treatment... More
Sector: Basic Materials
Industry: Independent Oil & Gas
Country: United States
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