Asset sales, oil prices lead energy discussion
Energy Editor Adam Wilmoth answered questions from readers Tuesday morning during the monthly online energy chat. This is an abridged transcript of that conversation. To see the full transcript or to participate in next month’s chat, go to NewsOK.com.
Q: Do you think the layoffs at Devon and Chesapeake are over with the current price of oil and gas? How likely is it that SandRidge will be around a year from now?
A: Oil and natural gas producers are adjusting their organizational structure to address the changed industry. Improved technology and processes mean companies can produce more oil and natural gas with fewer people and fewer resources. Like most producers, Devon and Chesapeake have had sharp cuts in recent years, but both companies have made strong progress in cleaning up their balance sheets, reducing debt and making their operations more efficient. Both companies still are trying to sell some of their noncore properties. Often when companies sell properties, they no longer need the people who have been working on those projects, so there may still be some cuts. Oftentimes the buyer hires many of those employees, allowing them to continue working on the same projects, just for a different company.As for SandRidge, we’ll know a lot more after next week’s shareholder meeting. Activist investor Carl Icahn is trying to take control of the board. He has said that if he gains a majority of the directors, he will consider making an offer to buy the company. Even if Icahn doesn’t take control of the board, the existing SandRidge directors have begun a process of asking for and evaluating offers to partner with or buy the company. It’s been a challenging several years for SandRidge.
Q: Any thoughts on Devon’s sale of their interest in EnLink?
A: Wall Street appears to approve of the deal and Devon executives’ decision to use the $3.125 billion in proceeds to boost a planned stock buyback to $4 billion, or about 20 percent of the company’s outstanding shares. The sale means the company no longer will get the $265 million in annual cash distributions it has been receiving from EnLink, but the sales price was about 12 times that amount. Basically Devon is taking that cash up front and investing in the long-term future of the company. Executives are using the proceeds to help boost the stock price and appease investors, a move that both helps Devon directly and could help protect the company from a buyout by a larger competitor or an activist shareholder.