Devon Energy Corporation DVN announced that it has completed the sale of its 50% ownership interest in Access Pipeline to Wolf Midstream Inc. The deal is valued at $1.1 billion (C$1.4 billion). Devon also has the right to receive an incremental payment of $120 million (C$150 million) from Wolf Midstream with the sanctioning and development of a new thermal oil project on Devon’s Pike lease in Alberta, Canada.
2016 Divesture Plans Complete
With the sale of the ownership interest in Access Pipeline, Devon has successfully completed the asset sale goal for 2016. Notably, management had planned to divest non-core assets worth $2 billion to $3 billion this year. The latest sale took the total divesture proceeds to $3.2 billion, thereby surpassing the company’s divesture target for 2016.
The agreement to divest Devon’s 50% interest in the Access Pipeline was announced in July. (Read more: Devon's Divestiture Goal Reached with Access Pipeline Sale)
The company expects the sale proceeds to strengthen its investment-grade balance sheet, and position the company to reap higher benefits from the resource-rich U.S. plays, including the STACK and Delaware Basins.
Volatile Oil Prices
Meanwhile, oil prices are far from steady. While prices have undoubtedly recovered from the February lows, they are nowhere near the 2014 highs. Note that the OPEC and big oil producers are now deciding on moves to check the oil supply glut in a bid to allow crude prices to improve.
On the other hand, Devon Energy has recently announced plans to deploy sale proceeds in the Delaware Basin and the Oklahoma STACK play, while raising its 2016 total production expectation from core assets by 7,000 boe per day to the range of 540,000–560,000 boe per day.
Moreover, the company expects every $1 improvement in realized oil price to lead to a $90 million incremental annualized cash flow.
Asset Sales by Peers
Year to date, many other companies operating in this space have sought to sell assets in order to strengthen their financial position amid the volatile commodity price environment.
This April, WPX Energy WPX announced an agreement to sell its wholly owned subsidiary, WPX Energy Rocky Mountain, LLC, to Terra Energy Partners LLC for $910 million. The proceeds generated will boost WPX Energy’s financial flexibility.
In May, Chesapeake Energy CHK revealed that it will sell a portion of its STACK acreage in Oklahoma for $470 million to Newfield Exploration NFX. The deal is in sync with its asset divestiture target of $500 million to $1 billion in 2016.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Zacks Investment Research