Devon Energy, Sumitomo agree to $1.4B pact
Devon Energy Corp. reported earnings that fell short of estimates and announced that Japan’s Sumitomo Corp. will take a 30 per cent stake in shale acreage Devon controls in the Permian Basin in a $1.4-billion US deal.
Investors focused on the earnings miss, pushing shares of Devon down 3.8 per cent.
The company, a heavy producer of natural gas liquids (NGLs) such as propane and ethane, said the prices for those feedstocks fell below expectations in the quarter, and more weakness is expected this year.
“Our outlook for NGL realizations has deteriorated somewhat since our last quarterly call,” Devon chief executive John Richels told investors, citing high inventories and new supplies as the reasons for the dimmer outlook.
The company reported a steep decline in second-quarter earnings that fell short of analyst estimates, as lower oil and natural gas prices weighed. Year-ago results were boosted by a $2.5-billion US gain from the sale of the company’s Brazilian assets. Maintenance work pushed Devon’s oil and gas output below expectations and contributed to the big earnings miss, analysts said.
The company posted a profit of $477 million US, or $1.18 US per share, compared with $2.7 billion US ($6.50 US) in the same quarter a year ago.
Excluding items, Devon posted a profit of 55 cents US a share. Analysts on average had expected a profit of 81 cents US per share, according to Thomson Reuters.
Devon said its oil and gas output was 679,000 barrels of oil equivalent per day, up 3 per cent from a year ago.
Bernstein Research characterized the quarter as disappointing and said it had expected Devon to produce 692,000 boe per day.
Devon’s deal with Sumitomo signals continued strong demand for shale drilling know-how from foreign partners. In April, Devon closed a $2.5-billion US shale joint venture with China’s Sinopec.
Sumitomo will invest $340 million US in cash upon closing and an additional $1.025 billion US, which will be invested in Devon’s drilling costs in the Cline and Midland-Wolfcamp shales, the companies said.