Devon to sell acreage, buy back stock
Devon Energy Corp. will sell part of its Barnett Shalenatural gas field and use the money to help pay for a $2 billion stock and debt buyback plan, the Oklahoma City-based oil and natural gas company said Wednesday afternoon.
Executives said the company has agreed to sell the southern portion of its Barnett Shale assets in Texas for $553 million. Devon directors also approved a plan to buy back $1 billion in common stock and $1 billion in debt. Directors also raised the company’s quarterly dividend 33 percent to 8 cents a share.
“Combined with other recent asset sales, divestiture proceeds associated with our 2020 Vision have now reached $1 billion,” CEO Dave Hager said in a statement Wednesday.
“We are very confident about Devon’s future and, as market conditions permit, we will continue to pursue opportunities to further increase cash returns to our shareholders.” Wednesday’s announcement comes two weeks after Devon executives outlined a plan to reward shareholders.
Devon is selling its Barnett Shale assets in Johnson County, Texas. The assets produce about 200 million cubic feet of natural gas equivalent per day. The deal is expected to close in the second quarter.
Devon is keeping its Barnett Shale assets in the Texas counties of Denton, Wise and Tarrant, which are producing about 680 million equivalent cubic feet per day.
Reducing debt
As part of Wednesday’s announcement, Devon directors authorized the company to buy back $1 billion in common stock over the next year. At Friday’s closing price of $30.95 a share, the buyback program represents more than 32.3 million shares, or about 6 percent of the company’s outstanding shares.
The company also began a tender offer for up to $1 billion of its debt due between 2022 and 2041. The tender offer is scheduled to close April 3.
Devon ended 2017 with $2.7 billion in cash on hand and net debt of $7.7 billion. Executives last month outlined debt repayment as one of the company’s top goals over the next few years.
Executives from the Oklahoma City energy company last month unveiled a plan over the next three years to generate $2.5 billion in free cash flow, sell $5 billion in noncore assets and repay $1.5 billion in debt.
The plan assumes domestic oil prices averaging about $50 a barrel. Domestic benchmark West Texas Intermediate crude closed at $61.15 a barrel Wednesday.
“We will reward our shareholders though higher dividend and opportunistic share buybacks, but our near-term priority is to use a significant portion of our cash balance to reduce debt,” Hager said last month.
A lower debt level is critical for helping the company properly develop its primary oil fields in the Delaware Basin of southeast New Mexico and west Texas and the STACK field in Oklahoma, he said.
“While we could have authorized a couple billion dollars in share buying and had the stock price bounce, that is not the correct move for Devon now,” Hager said last month.
“With current prices coupled with asset sales in 2018, I am confident in stating there will be increased shareholder returns this year.”
Like most oil and natural gas producers, Devon stock tumbled from 2014 through 2016. While corporate profits recovered throughout the oil patch last year, most stock prices remained low.
Devon shares slipped 38 cents Wednesday to close at $30.95, up from a recent low of $18.65 in February 2016, but well off 2014 highs near $80 a share. Wednesday’s announcement was made after markets closed.