Independent oil and gas company Devon Energy Corporation (DVN) successfully completed the sale of its ACG field assets to BP Plc (BP) for $2 billion. The company’s ACG field assets, located offshore Azerbaijan in the Caspian Sea, currently produce nearly 17 thousand barrels of oil per day (MBbls/d).
Devon is in the process of realigning its assets to focus more on the North American onshore market. As a part of this strategic repositioning, it is divesting all of its offshore Gulf of Mexico and international assets. With the completion of the ACG sale, which was announced in March 2010, Devon has moved closer to its plans of repositioning itself into a high-growth North American onshore company.
Devon’s realignment and asset divestiture plan dates back to November 2009. Since then, the company has completely exited its Gulf of Mexico operations and completed the sale of its Panyu field, offshore China. Net proceeds from the sale of these assets aggregate to $4.7 billion pre-tax ($3.6 billion, net).
With the $2 billion sale of the ACG assets, the company’s total sale proceeds from its strategic realignment plan have reached roughly $6.7 billion (pre-tax).
Looking ahead, Devon has another agreement in place to sell its Brazilian assets to BP Plc, which is awaiting approval of the Brazilian government. The company has also entered into an agreement to sell its remaining assets in China for $0.1 billion. Furthermore, the divestiture process for its exploration assets in Angola and other minor International assets is in progress. Devon expects to complete its strategic realignment by year-end 2010.
Devon estimates total proceeds of nearly $10 billion pre-tax ($8 billion after-tax) from its divestiture program. Devon intends to utilize the proceeds from the assets’ sale for developing its North American onshore properties, reducing debt level and buying back shares.
At the end of the most recent quarter, Devon’s liquidity was strong with $2.9 billion in cash and $2.6 billion of unused credit lines. The company’s net debt to capital ratio was also impressive at 16.1%, with a net debt of $5.6 billion.
Once the repositioning is complete, we expect Devon to have more liquidity and one of the most robust balance sheets among its peers. This balance sheet strength along with the company’s deep inventory of repeatable projects, significant exposure to emerging plays, consistent production profile and low cost structure reflect visible upside over the long run.
However, we expect the present constrained commodity environment to continue weighing on Devon’s financial performance, at least in the near term. As such, we see the stock performing in line with the broader market and rate it as Neutral. We have a Zacks #3 Rank (short-term ‘Hold’ recommendation) on the stock.
