As reported in The Journal Record:
OKLAHOMA CITY – Devon Energy Corporation, which is traded on the New York Stock Exchange under the symbol DVN, announced Monday that it would sell all of its international holdings and its assets in the Gulf of Mexico in an effort to strategically reposition itself as a North American onshore oil and gas company.
In a conference call with investors, Devon’s CEO Larry Nichols said the sale would position the company for growth.
“Devon’s success has led to an overabundance of opportunities, and this repositioning will allow us to optimize value for our shareholders,” Nichols said. “We do not believe that the value of our high-quality Gulf and international assets is being adequately reflected in our stock price. By monetizing these assets, we will realize their full value, allowing us to unleash the growth potential that resides within our world-class onshore assets.”
Nichols said the sale also would allow the company to focus on areas with the highest returns and the lowest risks. He said Devon expects to close on the sales throughout 2010.
“We expect to receive a great deal of interest in those assets,” he said.
He said Devon expects to see between $4.5 billion and $7.5 billion in revenue from the sales; proceeds would be used to reduce debt and invest in operations in the United States.
“Following the divestitures, Devon will be uniquely positioned to deliver high organic growth on a sustainable basis, funded entirely with internally generated funds,” Nichols said in a media release.
Devon’s president John Richels said the sale would give the company one of the strongest balance sheets in its peer group. He said Devon expects to have data rooms open for all of the sale assets and begin the process in the first quarter of 2010.
“After the sale we fully expect to deliver significant production growth in 2011 without issuing new equity or debt,” he said.
And while Devon officials wouldn’t speculate about what companies might purchase the company’s assets, company spokesman Chip Minty said those assets would require producers with deep financial pockets.
“We’re talking about large producers who are used to producing in very expensive high-yield environments like the Gulf of Mexico,” he said.
Though Minty declined to name any producer, when questioned, he did said Devon officials “wouldn’t be surprised” if they received bids from major producers such as the China National Offshore Oil Corporation, BP, Royal Dutch Shell, Chevron, ExxonMobil, Statoil or ENI.
“It’s way too early to speculate,” he said. “We still need to open a property room first. Before we get any offers a buyer would want an opportunity to look at our holdings.”
Based on estimated reserves, Devon’s Gulf of Mexico and international properties make up about 7 percent of Devon’s company-wide proven reserves of 2.8 billion barrels of oil equivalent.
Nichols said oil and natural gas liquids account for about 43 percent of Devon’s estimated proved reserves at year-end 2009. After the sale, he said the company’s overall balance between liquids and natural gas will change only slightly, with liquids making up an estimated 41 percent of proved reserves.
He said the company decided on the strategy after facing changes in the marketplace.
“A lot has changed in the last 12 months,” he said. “On one we continued to see outstanding performance of the assets. They have continued to demonstrate, during the past 12 months, the remarkable strength of our portfolio.”
However, he said capital requirements for off-shore and international production have grown and the current economic downturn has hampered oil and gas prices.
“I don’t think anyone two or three years ago saw the depth of this recession,” he said. “That has an impact. You put all those things together and the direction for this year has become clear.”
On Monday, Devon’s stock closed up $3.20 at $70.99.
This is a pretty significant step in the chartering of Devon’s future, and by implication, the business future of much of Oklahoma City’s oil and gas industry. It is telling, in my opinion, that strengthening balance sheets became important to Devon in the face of the recession. I don’t read much short-term optimism regarding the country’s economic outlook, in the undertone of this decision. Strengthening balance sheets sounds like a plan to buckle in and ride out a rocky future, otherwise Devon might have held onto that asset until prices climbed a little higher. We’ll see if instead Devon’s tactics indicate a plan to position itself for more aggressive spending later. In any case, it appears that the company is fortunate enough to have the assets upon which to strengthen itself to face the months ahead, whether we see a recovery or a continued recession.
While Devon may be looking toward 2011 as a year for production growth, Oklahoma City resident can start seeing Devon growth of a different kind presently, and in person. Construction of Devon’s skyscraper
broke ground this past October. It is believed to be the only skyscraper being built in the United States this year.
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