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
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.
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.
Dec. 7, 2015, 5:28 PM
- Devon Energy's (NYSE:DVN) deal to buy $1.9B worth of assets in the hot STACK shale play in Oklahoma may have the profit potential of the massive Bakken formation, but some analysts are questioning the high price.
- Continental Resources (NYSE:CLR) CEO Harold Hamm has sounded bullish on his own company's well in the STACK and believes it could be as profitable as the Bakken someday, but some analysts do not like the timing for the deal.
- S&P and Moody’s placed DVN debt under review for a downgrade; DVN will be increasing indebtedness to finance the deal at a time when it is already squeezed by low energy prices, S&P said, and Moody's said that "compared to the price of the acquisition, the acquired production and proved reserves is very small, and both properties are still in early development stages."
- "Levering up in this environment [is not] well-received," Wells Fargo's David Tameron says; DVN's purchases are a major cash commitment as the low price environment makes it harder for companies to raise capital, banks have grown warier about extending credit lines to the U.S. oil patch, and markets are more skeptical toward issuance of additional stocks and bonds.
Dec. 7, 2015, 7:41 AM
- Devon Energy (NYSE:DVN) pipeline unit EnLink Midstream (ENLC, ENLK) agrees to acquire Tall Oak Midstream for $1.55B, in a transaction announced concurrently with DVN's acquisition of assets from Felix Energy.
- The Tall Oak assets serve gathering and processing needs in the same Oklahoma areas where the Felix acreage is located, and are supported by long-term, fixed-fee contracts with acreage dedications that have a remaining weighted-average term of ~15 years.
- EnLink expects the deal to be accretive to distributable cash flow and allow it to continue growing distributions.
Dec. 7, 2015, 7:30 AM
- Devon Energy (NYSE:DVN) agrees to acquire 80K net surface acres in the Anadarko Basin STACK play in Oklahoma from EnCap Investments’ Felix Energy for $1.9B, and will acquire 253K net acres in the Powder River Basin in Wyoming for $600M.
- DVN says the acquired Anadarko Basin properties include production of ~9K boe/day and estimated risked resource of 400M boe; the acquired Powder River Basin acreage includes production of ~7K boe/day (85% oil) and conservatively identifies 500 development-ready locations with potential for as many as 2,700 unrisked locations.
- DVN says the transactions will be funded with $1.35B of equity and $1.15B of cash on hand and borrowings.
- DVN also says it is marketing its Access Pipeline in Canada and plans to monetize various upstream assets across its portfolio; it has identified 50K-80K boe/day of production from non-core assets to divest throughout 2016.
Dec. 3, 2015, 7:51 AM
- Devon Energy (NYSE:DVN) is in talks to buy Felix Energy for ~$2B, including debt, Reuters reports.
- DVN owns oil acreage and an interest in oil and gas pipelines located close to Felix's assets in northern Oklahoma.
- A deal would represent a bet by DVN that crude oil prices will recover from their current $40/bbl lows to ~$65 sooner rather than later, according to the report.
- Besides DVN, other major players with investments in the are where Felix operates include Marathon Oil (NYSE:MRO), Newfield Exploration (NYSE:NFX), Continental Resources (NYSE:CLR) and Cimarex Energy (NYSE:XEC).
Apr. 8, 2015, 7:59 AM
- Analysts at Jefferies now expect Royal Dutch Shell (RDS.A, RDS.B) to surpass Exxon Mobil (NYSE:XOM) as the world's largest publicly traded oil and gas producer by 2018, with output of 4.2M boe/day, following Shell's $69.6B deal to buy BG Group.
- But XOM has long been rumored as a potential bidder for BG, and Financial Times points out that it now has both the motive and the opportunity, raising the possibility that it could try to outbid Shell for BG.
- Like Shell, XOM is struggling to grow and will find it easier to raise production by dealmaking than by drilling; XOM’s output was ~4.3M boe/day in 2001 and 4M last year.
- With its greater size, low debt and AAA credit rating, XOM could muster a larger cash component in any offer than Shell’s 28% of its total offer of ₤13.50/share; however, hostile deals are very rare in the oil and gas industry.
- Whether or not BG is the perfect fit for XOM, Paul Sankey of Wolfe Research has suggested other midsized E&P specialists could prove tempting, including Hess (NYSE:HES), Continental Resources (NYSE:CLR), Devon Energy (NYSE:DVN), Apache (NYSE:APA) and Anadarko Petroleum (NYSE:APC).
Mar. 23, 2015, 6:26 PM
- EnLink Midstream Partners (NYSE:ENLK) agrees to acquire the Victoria Express Pipeline and related truck terminal and storage assets in a dropdown transaction from Devon Energy (NYSE:DVN) for total consideration of ~$210M.
- The deal includes $171M in cash, 338K ENLK common units and the assumption of $30M-$40M in certain construction costs to expand the system to full capacity.
- The pipeline, which became operational in Q3 2014, transports condensate from DeWitt County, Tex., to the Port of Victoria; current capacity is ~50K bbl/day, to be expanded to 90K bbl/day.
- ENLK says the transaction marks the first dropdown from DVN and expects such deals to play a significant role in its future growth.
Jul. 1, 2014, 2:52 PM
- Linn Energy’s (LINE +0.8%) $2.3B asset purchase from Devon Energy (DVN -0.1%) earns the praise of Raymond James analysts, who note that LINE plans to sell its high-decline Granite Wash assets to fund the deal, meaning the company is not likely to need to tap debt or equity markets for related funding.
- The firm estimates LINN may need to reserve only 20% of EBITDA to maintain the cash flow from the new assets vs. ~40% of EBITDA likely need to maintain the Granite Wash; through this transaction and the Permian divestiture program, LINN could reduce its overall capital budget by ~$400M.
- LNCO -0.3%.
Jun. 30, 2014, 9:12 AM
- Linn Energy (LINE, LNCO) agrees to acquire U.S. oil and gas properties from Devon Energy (DVN) for $2.3B.
- The assets currently produce ~275M cfe/day (~80% gas), with total proved reserves of 1.3T-1.5T cfe and total resource potential of ~3T cfe.
- The asset package is comprised of ~900K net acres across the Rockies, Mid-Continent, east Texas, north Louisiana and south Texas regions with ~4,500 total wells; LINN says it has identified 1K-plus future drilling locations and ~600 recompletion opportunities.
- LINN says the acquisition will be financed ultimately through the sale of its Granite Wash assets and other non-producing acreage in its portfolio.
- DVN says the deal covers remaining U.S. assets it had targeted for divestiture, and that the sale of Canadian and U.S. non-core properties over the past few months has generated $5B-plus in proceeds at an accretive multiple of nearly 7x 2013 EBITDA.
- LINE +0.3%, DVN +0.4% premarket.
May 5, 2014, 5:42 PM
- Talisman Energy (TLM) and Statoil (STO) are considering selling their joint venture in the Eagle Ford basin, which could fetch more than $4B, Bloomberg reports.
- TLM is said to have solicited offers last year for its 50% interest in the JV and couldn’t find a buyer in part because STO wasn’t ready to exit.
- The report speculates that a sale could draw interest from large exploration companies such as Encana (ECA), Murphy Oil (MUR) and Devon Energy (DVN) that want to acquire more oil-producing properties.
Feb. 19, 2014, 6:58 AM
- Devon Energy (DVN) has agreed to sell some of its liquids-rich natural-gas assets in Canada and six natural-gas plants for $3.13B to Canadian Natural Resources (CNQ).
- Before royalties, the properties produced the equivalent of 383M cubic feet of natural gas per day, 10,800 bpd of light crude oil and 12,000 bpd of natural gas liquids.
- The transaction doesn't include Devon's Horn River interests in northern British Columbia and heavy oil assets in Alberta.
- The deal comes after Devon said in November that it planned to sell all of its Canadian gas assets following years of low prices. (PR)
Nov. 20, 2013, 5:30 PM
- Analysts say the $6B deal for GeoSouthern will give Devon Energy (DVN) a better balance between oil and natural gas.
- Canaccord says oil currently accounts for 12% of DVN's total volume, and the deal likely significantly increases DVN's oil production, as GeoSouthern is the fourth largest oil producer in the Eagle Ford.
- "The deal makes them more of an oil company and grows their production," says a Hodges Capital analyst. "A lot of people still have the idea that they are too much of a gas company and this deal will change that right away."
- The investor reaction to the deal was tempered by the high price paid, which Richard Zeits says sets a new record in the Eagle Ford play in terms of price paid per net undeveloped acre in a major transaction; the major beneficiary today was Penn Virginia (PVA), whose shares surged 4% thanks to its strong presence in the area.
Nov. 20, 2013, 9:16 AM
- Devon Energy (DVN) confirms it has reached a definitive agreement to acquire GeoSouthern Energy's Eagle Ford assets for $6B.
- The acquired assets include current production of 53K boe/day and 82K net acres with at least 1,200 undrilled locations.
- Estimated recoverable resource is 400M boe, mostly proved reserves, with the acreage position located in the best part of the play, as evidenced by the highest average initial production rates in the entire play and average estimated ultimate recoveries in DeWitt County exceeding 800K boe/well.
- DVN says the acquisition will be funded with a combination of cash on hand and borrowings.
- Shares +4.5% premarket after rising nearly 5% yesterday when WSJ first broke news of the deal.
Nov. 19, 2013, 2:33 PM
- Devon Energy (DVN +1.9%) reportedly is close to acquiring privately-held GeoSouthern Energy for ~$6B, and a deal could be announced as soon as tomorrow.
- GeoSouthern is a Texas-based oil and gas exploration company whose operations are focused in the Eagle Ford shale, which it helped pioneer.
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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