Oil and gas company
Devon Energy Corporation
) announced that it has entered into a definitive agreement to sell
all of its non-core U.S. assets to
) for $2.3 billion or $1.8 billion after tax. This transaction is
expected to close in the third quarter of 2014. The decision to
sell its non-core assets is in sync with Devon's strategy to
further develop its core plays.
Devon's management had announced in Nov 2013 to transform its
existing portfolio of assets and concentrate more on the
development of its core operations.
As part of the transformation process Devon entered into an
agreement in Nov 2013 to acquire GeoSouthern Energy's assets in the
Eagle Ford Shale for $6 billion in cash. The transaction eventually
closed in the first quarter of this year. The acquired assets
brought with it an output of 53,000 barrels of oil equivalent
("BOE") per day and 82,000 net acres with at least 1,200 undrilled
The next logical step for Devon was to sell its non-core assets,
which included Canadian conventional and non-core U.S. oil and gas
assets. Devon sold its Canadian assets to
Canadian Natural Resources Ltd.
) in Apr 2014 for $2.7 billion. With the proposed sale of non-core
U.S. assets, the company will generate total proceeds in excess of
$5 billion from these divestures. Devon will utilize the net
proceeds to lower debts incurred to acquire the Eagle Ford assets.
As a part of the transformation process Devon also merged its
midstream assets with Crosstex's midstream systems to form EnLink
Midstream. The assets of Enlink Midstream are spread across premier
oil and gas producing regions of the U.S. Devon Energy by virtue of
its substantial holding in
EnLink Midstream Partners, LP
), the MLP and
EnLink Midstream, LLC
), the general partner stands to gain from the cash distribution
from these partnerships.
Focus on Oil
Devon Energy is currently concentrating on five core liquids-rich
plays, namely, the Eagle Ford Shale, the Permian Basin, Canadian
Heavy Oil, the Barnett Shale, and the Anadarko Basin. The primary
focus of the company is to develop high-margin oil assets.
As a part of this focus, in Apr 2014, Devon Energy decided to
invest $1.1 billion in its existing Eagle Ford assets. Devon aims
to increase production from the current 53,000 BOE per day to
135,000-145,000 BOE per day in 2017.
With the transformation of Devon's portfolio nearly complete, this
Zacks Rank #3(Hold) stock has some of the most prolific assets in
North America under its belt.
Devon Energy is a consistent performer having surpassed the Zacks
Consensus Estimate in the last four quarters with an average beat
of 11.31%. The end of the transformation process is expected to
further boost its performance. Devon's shares also reflect
this optimism, gaining 29.2% over the first half of 2014 to close
at $79.40 yesterday.
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