Oklahoma City-based Devon Energy, which has grown rapidly through acquisitions over the last several years to become the U.S.' largest independent producer, announced a series of U.S. asset sales last week to a number of undisclosed buyers. The company sold about 88 MMboe of U.S. gas and oil reserves for $1.2 billion ($915 million after taxes) or about $13.64/boe.
The non-core U.S. assets were previously set aside for divestiture along with some oil and gas properties in Canada, which Devon also is in the process of selling. It plans to release the details of the Canadian sale at a later date.
"The expected divestiture proceeds are at the high end of the range we anticipated," said CFO Brian J. Jennings. "After the divestitures, our property base will be more tightly focused and have a longer reserve life. Considering these impressive results and today's strong commodity price environment, we expect to conclude our current 50 million share stock repurchase program by late summer."
The U.S. assets being sold include multiple packages of properties located onshore and offshore. Devon said it sold about 46 MMboe of onshore reserves for $420 million after taxes and sold about 42 MMboe of offshore reserves for $495 million after taxes. One of the transactions was closed on March 31 and the remaining transactions are expected to close by April 30.
The company previously forecast that the U.S. properties being divested would produce 5.3 MMboe in the first quarter. Excluding the contribution of the divested properties for the full year, Devon expects its 2005 production of oil, gas and natural gas liquids to be 210 to 220 MMboe.
The company announced plans last September to divest some of its North American oil and gas properties, representing proved reserves of 145 to 165 million boe. Devon President John Richels said at the time that the assets being sold had steep decline rates and didn't fit the company's growth strategy of investing in long-term projects. "Given the premium prices recent divestitures have commanded, we believe this is an ideal time to refocus our producing portfolio," Richels said.
Divestiture of the properties also is expected to result in a lower overall cost structure and improved operating efficiency. The company intends to use the proceeds from this latest asset sale to buy back stock. It also plan to repay $1.6 billion of long-term debt in 2005 and 2006.
However, the property divestiture in the United States will result in early settlement of oil hedges covering 5,000 b/d. The early settlement of these oil hedges will result in a one-time penalty and a loss of $39 million, which will be reported in Devon's first quarter 2005 financial results.
Devon has carried out similar divestitures in recent years because of several large acquisitions. The company increased its oil and natural gas production 10% last year partly on the strength of its April 2003 merger with Ocean Energy. In 2001, Devon acquired Mitchell Energy and Development Co. for $3.1 billion of.
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