DEVON SALES
Devon announces asset sales plans
Devon Energy announces plans to sell Canadian and Barnett Shale assets before next year
Devon Energy is moving on. The firm announced Tuesday it intends either to sell or spin off its Canadian and Barnett Shale assets.
Its top executive said those moves are final steps the company plans to take to complete its transformation into an oil and gas exploration company focused primarily on oil growth from wells it drills in U.S. shale fields.
Dave Hager, Devon's president and CEO, described the steps the company is taking as “aggressive.” But he also said the aim is to “accelerate value creation for our shareholders by further simplifying our resource-rich asset portfolio.”
Along with news of the planned sales, Devon officials also announced plans Tuesday to increase the quarterly dividend by 13 percent, to expand the previously announced share-repurchase program from $4 billion to $5 billion and to reduce annual costs by at least $780 million.
“New Devon will emerge with a highly focused U.S. asset portfolio and has the ability to substantially increase returns and profitability” as the firm realigns its cost structure to expand its margins, Hager said in an interview with The Oklahoman.
Cutting historic ties
Devon has been active in Canada since it acquired Northstar Energy Corp. in 1998. Then, Northstar owned an oil sands operation called Dover that Devon used to experiment with steamassisted gravity drainage, a type of extraction that produces a thick oil known as bitumen from reservoirs too deep for traditional mining.
In 2012, Devon was ramping up those operations at its two Jackfish facilities, building a third Jackfish operation and developing a fourth with BP.
However, changing economic and market realities in 2014 caused Devon leadership to reconsider whether to continue expanding projects there.
Daily oil production from the company's three operating projects there during the fourth quarter of 2018
averaged 120,000 barrels, the company reported Tuesday.
Devon entered the Barnett Shale field in 2002, meanwhile, when it acquired Mitchell Energy, a Texas-based firm that had pioneered the use of hydraulic fracturing to produce natural gas from shale.
Devon took Mitchell's technology a step further by combining the fracturing technology with the concept of drilling horizontal wells into shale formations to significantly boost production volumes from those wells.
Success Devon had in that field spurred additional technological refinements Devon and other exploration and production companies since have developed and used to open and grow oil-producing shale fields throughout Oklahoma and the nation.
On Tuesday, Hager said Devon already has advisers working with the firm to assemble data potential buyers will be able to review as they evaluate each of those assets once they are offered for sale.
He said the company's decision to sell those assets comes at the end of a deliberative strategic planning process underway inside Devon for years, and that officials hope to complete the sales before the end of this year (although spinoffs could take some additional time because of regulatory filing requirements).
“I don't think it is a huge surprise” for analysts, he said, noting the company has been telling investors for some time the Canadian and Barnett assets wouldn't be attracting much investment from Devon, going forward.
And while he said the company expects there are potential buyers that could benefit from those acquisitions, he closed the door on a potential that Devon would keep those assets in its portfolio if no worthwhile deals are proposed.
If no buyers make a deal, the company intends to spin them off into separate entities, he said.
“We think it is appropriate to send a signal to markets and to our employees that this is who we are — a U.S. oil growth company that can be successful, right now.”
Looking ahead
Devon's future focus will remain on developing oilproducing assets it holds in the Delaware Basin, the STACK in northwest Oklahoma, the Powder River Basin in Wyoming and the Eagle Ford Shale field in south Texas.
The firm reported its Delaware Basin wells in southeast New Mexico turned in a stellar performance in the final quarter of 2018, when they posted a daily average production of 84,000 barrels of oil equivalent, up 49 percent compared to the same quarter in 2017.
It noted production there continues accelerating, with daily average production rates of 96,000 barrels logged during January.
Devon stated net daily total production companywide during the fourth quarter averaged 532,000 barrels of oil equivalent, exceeding midpoint guidance by 3,000 equivalent barrels per day and with oil making up 47 percent of total volumes.
Devon's estimated proved reserves on Dec. 31 were 1.9 billion equivalent barrels, with proved developed reserves accounting for 77 percent of that total and increases coming primarily from assets the firm intends to keep.
Hager said Tuesday Devon successfully transitioned its ongoing exploration and production work in the U.S. during 2018 into full-field development efforts that resulted in substantial high-return, lightoil production growth.
He also said that played a part in Devon's decision to part ways with its Canadian and Barnett assets, noting the latter holdings can't compete for capital expenditures the way its higher-value oil-producing areas can.
“They have been great, historically, and they are operated by great people,” he said. “But if we are not investing in them, perhaps they are better off in someone else's hands that will invest in them and create incremental value.
“It is all about focus. In our case, we are fortunate in that we have assets, not only in some of the better U.S. onshore basins, but we have some of the best positions in some of those basins. That has given us the operating scale that we now achieved that we feel we can grow for a long period of time.”
Devon also reported financial earnings for the final quarter of 2018 and for the year on Tuesday.
The company earned a net income of about $1.15 billion during the final quarter of 2018, compared to $183 million during the same time the previous year based on revenues of $3.7 billion and $2.38 billion, respectively.
Core earnings for the quarter, however, were just $36 million, after accounting for asset dispositions and fair value changes in financial instruments and foreign currency.
On Tuesday, Hager said the firm intends to accelerate its share repurchasing program using dollars it expects will come from anticipated free cash flow from oil pricing and from the sales of the Canadian and Barnett assets, if those happen.
While he said the firm hasn't been able to push its stock price as high as officials had hoped via the initial share repurchase program because of lowerthan-expected commodity pricing, he also said he expects that trend to reverse course.
“We think when we look back at this, we will believe it was a good deal to buy shares at current pricing,” he said.
A few hours after markets closed Tuesday, the value of the company's stock traded under the ticker symbol DVN was up by nearly 6.7 percent to $30.20 a share.