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Devon (DVN) Divests Non-Core Assets in Barnett for $533M


Devon Energy Corp. DVN announced that it has entered into a definitive agreement to sell the southern portion of its Barnett Shale position for $553 million. This deal is part of the company’s plan to divest more than $5 billion of its non-core assets in the next three years under its Vision 2020 initiative. The transaction is subject to customary terms and conditions, and is expected to close in the second quarter of 2018.

The assets, which are earmarked for monetization, are currently averaging 200 million cubic feet of gas-equivalent per day. Combined with other recent asset divestitures announced by the company, it has already announced to sell non-core assets worth $1 billion.

The remaining Barnett Shale holding has a current production capacity of 680 million cubic feet of gas-equivalent per day.

Usage of the Proceeds

In 2018, Devon Energy plans to lower $1.5 billion of its outstanding debt to strengthen its balance sheet and lower interest expenses. Devon Energy might utilize the sale of proceeds from Barnett Shale to lower its outstanding debt level.

Recently, the company announced plans to repurchase its outstanding debt of $1 billion and intends to fund the same with cash flow generated from operations, and net proceeds from previously completed asset sales and financing transactions.

Long-Term Plans

The strategy to divest non-core assets is actually helping Devon Energy to concentrate on its high-margin oil production region. The company will in turn utilize the cash flow to lower its existing debts levels, and work to increase shareholders’ value through share buybacks and dividend growth.

The company aims to generate $2.5 billion free cash through 2020. Apart from divesting its non-core assets over the course of next three years, the company is also focused to increase shareholder value through payment of dividend and share buyback. Devon Energy recently raised its quarterly dividend rate by 33%. (Read more: Devon Energy Rewards Shareholders with Dividend Hike) The cost saving initiatives could bring down per unit cost in excess of 15% by 2020.

The company is also poised to gain from its Midstream division, Enlink. For 2018, the company expects midstream operating profits to expand in excess of 20% from 2017’s level of $912 million. This increase will be primarily due to Devon’s strategic investment in EnLink Midstream.

Price Movement

Shares of Devon Energy have gained 1.8% against the Zacks Domestic E&P Oil and Gas industry’s rally of 13.6% in the last six months.

Zacks Rank

Devon has a Zacks Rank #4 (Sell). A few better-ranked stocks in the same industry worth considering are Concho Resources Inc. CXO, Pioneer Natural Resources Co. PXD and Energen Corp. EGN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Concho Resources reported an average positive earnings surprise of 48.89% in the last four quarters. Its 2018 and 2019 earnings estimates moved up 23.3% and 23.6%, respectively, in the last 30 days.

Pioneer Natural Resources reported an average positive earnings surprise of 66.92% in the trailing four quarters. Its 2018 and 2019 earnings estimates moved up 51.6% and 33.7%, respectively, in the last 30 days.

Energen reported an average positive earnings surprise of 19.67% in the last four quarters. Its 2018 and 2019 earnings estimates moved up 24.1% and 21.4%, respectively, over the last 30 days.

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