Devon Energy Corp. (DVN), the oil and gas producer that sold its overseas assets to focus on North America, will return $2 billion of those cash sales proceeds to the U.S. after a change in its tax status.
Devon, based in Oklahoma City, has about $6.5 billion of cash invested overseas and expects to spend $500 million of it this year in Canada where it is drilling for oil and ramping up oil-sands operations, Chief Financial Officer Jeff Agosta said today on the company’s 2013 first-quarter conference call.
The company reported more than $8.8 billion of proceeds from sales of overseas and offshore oil and gas assets in 2010 and 2011, investing the money while borrowing to support its U.S. operations to avoid a tax bite, Chief Executive Officer John Richels said.
First use of repatriated proceeds will be to pay off that short-term debt, Agosta said. The company will also consider share buybacks and believes a “buyers’ market” is emerging for North American fields, Richels said.
Devon expects a tax rate “in the middle single digits” on repatriated funds, Agosta said. Devon may repatriate more of the remaining $4 billion this year or next, he said.
“This raises hopes that they can bring back more of that money without paying so much in taxes,” Brian Youngberg, a St. Louis-based analyst for Edward Jones who rates Devon a hold and owns no shares, said today in a telephone interview.
A tax rate of 5 percent on repatriated cash represents a savings of $500 million to $600 million, or about $1 a share, over the 35 percent tax rate investors had been expecting, Youngberg said.
Devon increased 0.3 percent to $55.24 at the close in New York.
A recent re-evaluation of sales and spending forecasts indicates the company will have sufficient tax-loss carry forwards and foreign tax credits to reduce cash taxes on the $2 billion repatriation, Vince White, Devon’s investor-relations chief, said in a telephone interview after the conference call.
The tax status isn’t related to a first-quarter net loss of $1.3 billion, or $3.34 a share, reported today under generally accepted accounting principals, White said.
Non-cash costs of $1.6 billion to write down the value of oil and natural gas liquids reserves on lower market prices caused the loss. Per-share profit excluding one-time items was 66 cents, 11 cents better than the average of 27 estimates compiled by Bloomberg from analysts.
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