Devon Energy sells $2.3B in US non-core assets to LINN

Devon Energy/Jefferies

As planned, Devon Energy Corp. (NYSE:DVN) has agreed to sell all of its non-core US oil and gas properties to Linn Energy (Nasdaq: LINE, LNCO) for $2.3 billion, or approximately $1.8 billion after tax. Proceeds of approximately $6,500 per flowing mcfe is roughly in-line with past gas deals and just over 5x 2013 EBITDA, according to calculations by Jefferies. The agreement covers Devon’s remaining assets targeted for divestiture and includes properties in the Rockies, onshore Gulf Coast, and Mid-Continent regions of the US.

John Richels, Devon Energy president and CEO“With the sale of our remaining non-core assets, the portfolio transformation that we announced late last year is now complete,” said John Richels, president and CEO. “In a short period of time we transformed our portfolio through three significant steps: the accretive Eagle Ford entry, the innovative creation of EnLink Midstream, and the sale of our non-core properties. The sale of Canadian and US non-core properties over the past few months has generated in excess of $5 billion of proceeds at an accretive multiple of nearly 7 times 2013 EBITDA.”

“Devon is now concentrated in some of the most attractive North America resource plays, with liquids expected to approach 60% of our production by year-end and multi-year oil production growth projected to be in excess of 20%,” said Richels. “In addition to creating a platform that supports competitive and high-margin growth, we remain committed to maintaining strong investment-grade credit ratings. Upon completion of this transaction we will have reduced our net debt by more than $4 billion this year.”

Devon’s production from these non-core US assets is currently 275 million cubic feet of gas equivalent per day, of which approximately 80% is natural gas (1Q production split was 150 MMcfe/d Rockies (71% gas), 102 MMcfe/d Gulf Coast (86% gas), and 42 MMcfe/d Mid-Con (77% gas). At December 31, 2013, proved reserves associated with these properties amounted to 1.242 trillion cubic feet of gas equivalent. EBITDA accompanying these assets totaled $350 million in 2013.

The transaction is subject to customary terms and conditions and is expected to close in the third quarter of 2014, with an effective date of April 1, 2014.

Jefferies LLC acted as lead financial advisor to Devon on the transaction. Credit Suisse Securities (USA) LLC also acted as a financial advisor to Devon on the transaction. Vinson & Elkins LLP acted as legal advisor to Devon.

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