Devon Energy monetizes Midland Basin assets for $858M

Devon Energy Corp. (NYSE: DVN) entered definitive agreements to sell its remaining non-core assets in the Midland Basin for $858 million. The transactions include the company’s upstream assets in the southern Midland Basin and its undeveloped leasehold in Martin County, Texas. This brings total announced non-core transactions to $2.1 billion.

The Oklahoma City, OK-based company now expects its full-year 2016 upstream capital program to range between $1.1 billion and $1.3 billion. The incremental capital investment will be deployed in the Delaware Basin and the Oklahoma STACK play beginning in the third quarter of 2016 with the addition of three operated rigs. The company is also raising its full-year 2016 production guidance from core assets to a range of 540,000 to 560,000 boe/d—an increase of 7,000 boe/d from previous guidance.

Efforts to monetize low-margin, non-core properties and focus capital on high-return plays (STACK and Delaware basins) should benefit capital efficiency going forward, Seaport Global Securities analysts commented Thursday, but noted "even with ~2x the rig count in these basins in FY17 (from current levels), our model still shows -2% growth YoY (ex-asset sales), which underscores the challenge of declines associated with Q1 production of 685 Mboe/d."

Midland divestitures
In the northern Midland Basin, Devon agreed to sell its working interest across 15,000 net acres in Martin County, Texas along with 13,000 net acres in eight surrounding counties for $435 million to Pioneer Natural Resources. Combined with the recent sale of the company’s overriding interest in Martin County, proceeds from Devon’s northern Midland Basin acreage position totaled $574 million.

In a separate transaction, Devon agreed to sell its assets in the southern Midland Basin for $423 million. Current production from the assets is approximately 22,000 boe/d, of which 33% was oil. Field-level cash flow accompanying these assets, which excludes overhead costs, amounted to $13 million in the first quarter of 2016.

Jefferies LLC acted as the lead financial advisor to Devon on the divestiture transactions. RBC Richardson Barr also acted as a financial advisor to Devon. Vinson & Elkins LLP acted as legal advisor to Devon.

The transactions are subject to customary terms and conditions and are expected to close in the third quarter of 2016.

 

 

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