Devon Energy Corp. achieved a better-than-expected price for its Access Pipeline system in Canada, freeing up funds to expand U.S. onshore exploration efforts.
The Oklahoma City-based producer agreed to sell its half-stake in Access oil system for $1.1 billion, ahead of most analyst expectations. Calgary-based Wolf Midstream Inc., a privately held portfolio company of Canada Pension Plan Investment Board, agreed to the deal, its first major purchase since it was launched last September.
Access was one of the few midstream properties that Devon retained after spinning off most of its pipeline interests into majority owned EnLink Midstream (see Shale Daily, Oct. 21, 2013).
"With the highly accretive sale of Access, Devon's divestiture program is now complete with proceeds totaling $3.2 billion, surpassing the top end of our $2 billion to $3 billion guidance range," Devon CEO Dave Hager said. The divestiture proceeds "significantly strengthen our investment-grade balance sheet and position us to further accelerate investment in our best-in-class U.S. resource plays," led by the Permian Basin's Delaware sub-basin and Oklahoma's stacked reservoirs.
The transaction, set to be completed in September, builds on recent asset sales momentum evident across the oil and gas industry, as operators cobble together small- to medium-size deals to reduce their debt and to remain poised for recovery.
Devon management has routinely expressed confidence -- and delivered -- as it works to deleverage its balance sheet and build its production/midstream prowess in the U.S. onshore (see Shale Daily, Feb. 17; Dec. 7, 2015).
However, the Access sale is notable, said Wunderlich Securities Inc. analyst Vedran Vuk. In a note Thursday, Vuk mirrored comments by some peers in noting that in the past few months, "we talked to several investors who were skeptical on whether a sale would happen, given the difficulty some other companies have had in monetizing their midstream assets."
Devon had planned to complete the Access sale by the end of June, and "while most investors saw this sale coming, it was not with 100% certainty," Vuk said. Devon "has really shown the market how it is done, in our view."
The sale to Wolf includes an incentive for Devon to proceed with its Pike project, another heavy oil project in Alberta, with an option for additional payment of $120 million if Pike is sanctioned and developed, as well as a potential 30% discount on its toll. Pike would be a mirror of Devon's Jackfish project, a steam-assisted gravity drainage project that now feeds the Access system. Pike is 50-50 owned by Devon and BP plc and would produce up to 105,000 b/d gross.
As part of the agreement, Devon also has dedicated for 25 years the associated oil acreage to Access. Its lease operating expense at Jackfish is expected to increase by $100 million on an annualized basis.
"Access is an attractive foundational asset for Wolf that provides us with immediate scale in the region," Wolf CEO Gord Salahor said. While Devon is a long-term partner, Wolf plans to expand service "with third-party shippers."