Devon Boosts Share Offer to $1.3 Billion on Investor Support

  • Plan takes U.S. drillers' 2016 equity-raising to $4.6 billion
  • Proceeds to be used to pay down debt and fund spending

Devon Energy Corp. will raise about $1.3 billion by selling shares, joining at least six other U.S. oil and gas companies to tap Wall Street equity investors this year to weather the slump in energy prices.

The oil explorer will sell as many as 69 million shares, 25 percent more than originally planned, at $18.75 apiece, it said in a statement. The Oklahoma City-based company may grant the underwriters an option to buy as many as 10.35 million additional shares, more than the 8.25 million announced earlier, according to the statement. The sale is at a 7.8 percent discount to Devon’s closing share price in New York on Wednesday.

Devon is the latest U.S. oil company raising money by selling shares as they seek funds to help ride out the worst oil-price downturn in decades. Pioneer Natural Resources Co. raised more than $1.4 billion last month in fresh equity and Hess Corp. said this month it would raise a similar amount. The new funding is likely to help companies continue to pump oil, keeping U.S. output high and ultimately slowing any price recovery, said Exane BNP Paribas.

“With lower oil prices continuing to place companies under severe pressure, equity’s appetite to continue providing capital to U.S. shale operators will likely have implications for both U.S. output and any oil price recovery,” Paribas’s London-based analyst Aneek Haq wrote in a note to clients on Thursday.

Devon’s plan takes U.S. energy companies’ equity-raising plan to $4.6 billion this year, according to data compiled by Bloomberg. At the beginning of last year, drillers issued new shares to raise money at the fastest pace in more than a decade with $7.8 billion raised in the first two months of 2015.

Devon announced the stock sale in addition to cutting 20 percent of its workforce, slashing its dividend and reducing capital spending. The company this week reported fourth-quarter earnings, excluding one-time items, of 77 cents a share, compared with the 71-cent average of 31 estimates compiled by Bloomberg. 

Investors’ Appetite

Goldman Sachs Group Inc. is the book-running manager for Devon’s offering, which closes on Feb. 22, according to the statement.

For U.S. oil companies, already under huge debt loads and repayment pressure, selling shares is proving to be a preferred method of raising cash. Devon increased the offering’s size within hours of its first announcement, showing investors’ appetite for the sale. Pioneer went through a similar process in early January when it increased the sale to 12 million shares from 10.5 million. 

Devon’s stock dropped 4.4 percent to $20.33 in New York on Wednesday, the 10th decline in the past 12 trading days. The shares have dropped 36 percent this year, extending last year’s 48 percent slump. Shares were down another 5.4 percent to $19.24 as of 9:19 a.m. Thursday in trading before regular market hours.

West Texas Intermediate crude slumped to the lowest in 12 years this month. The downturn has squeezed the balance sheets of drillers across the world, reduced their cash flow and forcing some in the U.S. to default on their debt payments. The U.S. shale industry needs to pay $1.2 billion in interest by the end of March.

Producer Bankruptcies

Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion, according to law firm Haynes & Boone. Deloitte LLP said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession.

Russia and Saudi Arabia, the world’s biggest crude producers, agreed this week to cap their output at January levels as they attempt to bolster prices and bail out their economies and industry. Qatar, Venezuela, Iraq, Kuwait and the United Arab Emirates are also willing to freeze, while Iran supported the plan without saying if it will curb its own production. 

Oil has increased 8.5 percent in the past two days in New York, narrowing this year’s loss to 15 percent.

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