Devon to Sell Oil and Gas Assets for Almost $1 Billion

  • Deals advance plan for as much as $3 billion of divestitures
  • Company in “advanced negotiations” to shed pipeline stake

Devon Energy Corp., the energy producer that’s targeted $3 billion of asset sales to fund drilling and lower debt, agreed to sell fields in Texas and Oklahoma and a royalty interest in the northern Midland Basin for almost $1 billion to undisclosed buyers.

The largest transaction was for reserves in East Texas for $525 million, the Oklahoma City-based oil and natural gas producer said in a statement Monday. The company also agreed to sell its position in the Anadarko Basin’s Granite Wash area for $310 million. The transactions are expected to close in the third quarter.

A global oil-price crash has forced Devon and the rest of the industry to slash costs, lay off thousands of workers and cut dividends and exploration budgets. While prices have rebounded somewhat in 2016, Chief Executive Officer Dave Hager said last month it’s still not enough for Devon to grow production again.

“We expect the market to react positively to this news as there was some concern that the sale program would not be executed successfully,” Paul Westervelt, a trader at Iberia Capital Partners in New Orleans, said in a research report Monday. “The realized sale prices seem healthy.”

Devon climbed 4.6 percent to $37.58 at 1:53 p.m. in New York trading after rising as much as 4.9 percent earlier. Before today, the shares had gained 12 percent for the year, riding a rebound in global oil prices.

Access Pipeline

Devon is also in “advanced negotiations” to sell its half stake in the Access Pipeline, according to the statement. The line transports Canadian heavy oil and Devon is seeking a 25-year transportation agreement in that deal, CEO Hager said at a May 18 investor conference.

“With oil prices having moved in our favor throughout the sales process, we are encouraged by the interest and progress in marketing our remaining non-core oil assets in the Midland Basin and Access Pipeline in Canada,” Hager said in Monday’s statement. “Proceeds for the entire divestiture program are well on their way to achieving our previously announced range of $2 billion to $3 billion in 2016.”

The East Texas properties produced the equivalent of 22,000 barrels of oil a day in the first quarter, 5 percent of which was crude, and generated $10 million of cash. Proved reserves are about 87 million barrel equivalents. The Granite Wash assets produced the equivalent of 14,000 barrels of oil a day, 13 percent of it oil, and generated $6 million in cash during the quarter. Proved reserves are estimated at 31 million barrel-equivalents.

Capital Spending

West Texas Intermediate, the U.S. benchmark crude, is up about 34 percent this year after dropping 30 percent last year. Oil traded at $49.58 a barrel at 9:48 a.m. in New York.

Devon intends to use a third of sale proceeds to bolster this year’s capital spending and pay down debt with the rest, Hager said last month. The company’s also said that is would need to make progress on asset sales before considering an increase in production, said Peter Pulikkan, a Bloomberg Intelligence analyst.

“Devon’s top priority in 2016 is to protect and delever its balance sheet,” he said in an e-mail. The price received for the Access pipeline “will really determine whether they achieve their target range for the divestiture package.”

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