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Devon Energy to Sell More Assets; Ups Capex, Output View

Devon Energy CorporationDVN announced that it has entered into a definitive agreement to sell its existing Midland Basin non-core assets for $858 million. This did not come as a surprise as the company had given clear indications of selling off its Midland Basin assets. Year to date, the company has announced asset sale of nearly $2.15 billion.

Assets to be Sold

Two asset sale transactions in different locations of the Midland Basin will sum up to nearly $858 million. In a $435 million deal, Devon Energy will sell its working interest across 15,000 net acres in Martin County, TX along with 13,000 net acres in eight surrounding counties, situated in the northern Midland Basin.

In a separate agreement, the company agreed to sell its assets in the southern Midland Basin for $423 million, which is producing nearly 22,000 Boe per day.

Other Assets Queued Up for Sale

Devon Energy had plans to divest non-core assets worth $2 billion to 3 billion in 2016. The company is currently in talks with interested parties to sell its 50% interest in the Access Pipeline in Canada.

Devon Energy now expects sale proceeds from the Access Pipeline in Canada to not only help it to achieve its divesture target for the year, but also to exceed it.

Utilization of Proceeds

One of the initiatives adopted by energy companies in the wake of tough market conditions was to divest non-core assets. Their focus was also on maintaining investment grade credit rating.

Devon Energy will utilize nearly 67% of the proceeds from asset divesture to lower its existing debts and use the rest to make strategic investment in high-quality resource plays.

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Ups 2016 Capital & Production

Devon Energy raised its 2016 capital expenditure guidance by $200 million at both ends to a range of $1.1 billion to $1.3 billion. The company will deploy the additional funds in the Delaware Basin and the Oklahoma STACK play during the third quarter.

Devon also raised its 2016 total production expectation from core assets to the range of 540,000-560,000 boe per day by 7,000 boe per day.

Earlier Divesture

Earlier this month, Devon Energy entered into a definitive agreement to sell nearly $1 billion of non-core upstream assets situated in east Texas, the Anadarko Basin and an overriding royalty interest in the northern Midland Basin (read more: Devon to Sell $1B Assets; Plans $2-3B Divesture in 2016 ).

Bottom Line

Oil prices have recovered to some extent in the last two months and there are indications of further recovery ahead.

At Devon Energy, oil comprised 44% of the total production in the first quarter of 2016. The company increased its production of oil and indicated more investments in oil-rich basins, which point toward strong revenue generation in the second half of 2016.

Another oil-focused company, WPX Energy WPX , recently raised its oil production expectation by 5% from its earlier projection to 39,000 to 41,000 barrels of oil per day for 2016.

Zacks Rank

Devon Energy currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the oil and natural gas space are Synergy Resources Corporation SYRG and Eclipse Resources Corporation ECR , both carrying a Zacks Rank #2 (Buy).

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DEVON ENERGY (DVN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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