Current DVN Stock Info

By Tyler Losier, Energy Reporter, Oil & Gas 360

Devon looks to focus on oil-based growth in U.S., departs Canada
Canadian Natural Resources Limited (stock ticker: CNQ) inked a deal this Wednesday to acquire Devon Energy Corp.’s (stock ticker: DVN) Canadian assets for a cash purchase price of approximately US$2.8 billion (CAD $3.8 billion). The deal is expected to close in late June, contingent on normal closing conditions and regulatory approval.

In a press release, Devon called the move a “strategic exit,” citing a desire to focus exclusively on U.S. oil as the motivating factor for the sale. On the other side of the coin, the land in question is located proximate to Canadian Natural’s assets in the western portion of the co...

Analyst Commentary

From MKM Partners:

Investment overview:
We are increasing our DVN price target by $2 to $40 per share as a consequence of the divestiture of the Canadian oil sands business. Devon is divesting its Canadian oil sand business for ~$2.7 billion in cash, net of ~$100 million in tax leakage. The Canadian oil sands assets were projected to average ~115 Mboepd (~99% oil) and generate ~$375 million in EBITDA next year. Accordingly, the sale translates to an approximate $23.5K/Boepd 2020 production multiple and ~7.2x 2020 EBITDA, net of tax leakage. Our 2Q19 production expectation of ~519 Mboepd is in the upper half of guidance (489-524 Mboepd). Devon has executed ~$4 billion of its $5 billion share repurchase program and intends to complete the program by YE19. Assuming completion of the repurchase program at the current share price, the company would acquire an additional ~38 million shares. Relative to our price target, the remaining repurchase program would be ~$3 per share NPV accretive.

Pro forma complete portfolio rationalization, full cycle return should surpass E&P industry median:
With the divestiture of the lower cash margin Canadian oil sands business, Devon’s full-cycle return improves to ~110% versus the industry median cash recycle ratio of ~115%. Assuming the divestiture of lower cash margin Barnett gas assets per the analysis below, the company’s pro forma full cycle return should approximate 125%.

Divestiture of Barnett gas asset for ~$1K/Mmcfepd would be modestly value accretive:
Assuming the divestiture of the Barnett assets for ~$600 million or ~$1K/Mmcfepd (production ~600 Mmcfepd, ~30% liquids), implies an approximate 3x EBITDA transaction multiple and would be approximately $1 per share NPV accretive. Combined Canadian oil sands/Barnett gas asset proceeds of up to $3 billion are intended to fund debt repurchases.

Delaware Basin asset returns materially exceed Anadarko/Powder River Basins:
The company is allocating ~50% of U.S. capital spending this year to the Delaware Basin, ~20% toward the Anadarko Basin and ~15% respectively to Eagle Ford and Powder River Basin.

Delaware Basin:
Devon is conducting an 11 rig Delaware Basin drilling program and plans to drill ~125 wells and TIL 100-110 wells (~8,500’ average laterals) this year. The Wolfcamp comprises approximately 45% of Delaware Basin drilling activity, the Bone Spring ~30% and Leonard ~25%. Bone Spring wells (~8,000’ lateral) should recover ~1,000 Mboe (~125 Mboe/1,000’ lateral; ~70% oil) for a cost of ~$5 million (~$625/ft.). Leonard B/C wells (~8,000’ lateral) should recover ~1,200 Mboe (~150 Mboe/1,000’ lateral; ~40% oil) for a cost of ~$5.5 million (~$750/ft.). Wolfcamp wells (~8,000’ lateral) should recover ~1,600 Mboe (~200 Mboe/1,000’ lateral; 50%-60% oil) for a cost of ~$7.5 million (~$940/ft.).

Anadarko Basin:
Devon is conducting a five rig Anadarko Basin program and plans to TIL 85-95 wells (~9,000’ average laterals) this year. Meramec wells (~10,000’ lateral,) should recover ~1,300 Mboe (~130 Mboe/1,000’ lateral, ~30% oil) for a cost of approximately $7.5 million (~$750/ft.). The company plans to develop the Meramec with four to six wells per section with the Upper Meramec the primary landing zone.

Powder River Basin:
Devon is conducting a four rig program and plans to drill ~35 Turner wells in the Super Mario area and ~10 Niobrara delineation wells this year. The company plans to TIL 35-40 wells (~10,000’ average laterals) in 2019. Turner wells (~10,000’ laterals) in Converse County should recover ~800 Mboe (~80 Mboe/1,000’ lateral; ~70% oil) for a cost of approximately $7 million (~$700/ft.). Three initial Niobrara wells (~10,000’ lateral, ~3,000 lbs./ft. of proppant) commenced at an average of ~1,200 Boepd (~90% oil).  


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