Devon Energy Corp. (NYSE: DVN) has entered into definitive agreements with undisclosed parties to monetize nearly $1 billion of non-core upstream assets in east Texas, the Anadarko Basin and an overriding royalty interest in the northern Midland Basin.
The largest transaction is an agreement to divest upstream assets in east Texas for $525 million. Net production from these properties averaged 22,000 oil-equivalent barrels (boe) per day in the first quarter of 2016, of which approximately 5% was oil. Field-level cash flow accompanying these assets, which excludes overhead costs, totaled $10 million in the first quarter. At Dec. 31, 2015, proved reserves associated with these properties amounted to approximately 87 MMboe.
In a separate transaction, the company agreed to sell its non-core position in the Anadarko Basin’s Granite Wash area for $310 million. Net production associated with these properties averaged 14,000 boe per day in the first quarter of 2016, of which 13% was oil. Field-level cash flow accompanying these assets, which excludes overhead costs, totaled $6 million in the first quarter. At Dec. 31, 2015, proved reserves associated with these properties amounted to 31 MMboe.
In the northern Midland Basin, Devon entered into an agreement to sell its overriding royalty interest across 11,000 net acres for $139 million. Current production from this overriding royalty interest is approximately 1,000 boe/d. The transaction does not include the company’s working interest across 15,000 net acres in Martin County, Texas that is being marketed separately.
Commenting on the announcement, Raymond James analysts note that so far this year, “Devon has divested $1.3 billion in upstream assets, including $200 million sale of non-core Mississippian Lime assets that is expected to close this quarter. Note that all of the assets involved have been previously earmarked by the company for divestiture, and proceeds are right in line with the $1-2 billion range (excluding Access Pipeline sale) laid out by management. In addition, the company is still marketing 15,000 undeveloped acres in Martin County and Midland producing assets with associated production of 25,000 boe/d. Under a conservative valuation, these assets could fetch upwards of $750 million, allowing the company to meet or even surpass its original target.”
Remaining divestiture assets
The company continues to progress toward monetizing other non-core upstream assets in the Midland Basin. Production associated with these assets averaged approximately 25,000 boe/d in the first quarter and includes the aforementioned 15,000 net undeveloped acres in Martin County.
Additionally, Devon is in advanced negotiations to sell its 50% interest in the Access Pipeline in Canada. An announcement is anticipated within the next several weeks. While no additional details were provided, Raymond James offered an expected target of near $1 billion in proceeds, “though are uncertain at this point whether the assets will be dropped down to Enlink or sold to a third party.”
Jefferies LLC acted as the lead financial advisor to Devon on the transactions. RBC Richardson Barr also acted as a financial advisor to Devon. Vinson & Elkins LLP acted as legal advisor to Devon.
These transactions are subject to customary terms and conditions and are expected to close in the third quarter of 2016.