Gulf Coast / Shale Daily / Mid-Continent / Granite Wash / NGI The Weekly Gas Market Report / Rockies/Other / NGI All News Access

Linn Builds Natural Gas-Rich Portfolio in $2.3B Deal with Devon

Devon Energy Corp. has completed its portfolio transformation after agreeing to sell five natural gas-weighted onshore properties covering 900,000 net acres to Linn Energy LLC for $2.3 billion.

The properties, 80% weighted to gas, include 4,500 producing wells in the Rockies, East and South Texas, Louisiana and the Midcontinent.

Total production, with a shallow base decline of 14%, is 275 MMcfe/d, with total proved reserves estimated at 1.3-1.5 Tcfe. About 75% of the assets are proved developed producing, with a resource potential of around 3 Tcfe. Devon earned about $350 million from production on the assets in 2013.

"With the sale of our remaining noncore assets, the portfolio transformation that we announced late last year is now complete," said CEO John Richels. "In a short period of time we transformed our portfolio through three significant steps: the accretive Eagle Ford entry, the innovative creation of EnLink Midstream, and the sale of our noncore properties."

Richels helmed a massive makeover of the Oklahoma City driller beginning last year (see Shale DailyFeb. 22, 2013). Last November it put close to one-third of its considerable North American gas portfolio on the market after landing a $6 billion agreement to buy into the Eagle Ford Shale (see Shale DailyNov. 20, 2013).

Midstream properties were sold for $4.8 billion into a joint venture with CrossTex Energy LP that formed EnLink Midstream LP (see Daily GPIFeb. 19a). And conventional assets in Canada worth about $2.8 billion were marketed to Canadian Canadian Natural Resources Ltd. (see Daily GPIFeb. 19b).

"The sale of Canadian and U.S. noncore properties over the past few months has generated in excess of $5 billion of proceeds" at an accretive multiple almost seven times 2013 net income with interest, taxes, depreciation, and amortization added back to it, Richels said.

"Devon is now concentrated in some of the most attractive North America resource plays, with liquids expected to approach 60% of our production by year-end and multi-year oil production growth projected to be in excess of 20%," he said. "In addition to creating a platform that supports competitive and high-margin growth, we remain committed to maintaining strong investment-grade credit ratings."

Once the transaction with Linn is completed, Devon will have reduced its net debt by more than $4 billion, Richels added.

The purchase gives Linn yet another big set of gas-rich properties in the onshore to explore. In May the producer became the biggest operator in the gassy Hugoton Basin of Kansas after swapping some Permian land with ExxonMobil Corp. (see Shale DailyMay 22).

Management indicated Monday it has identified more than 1,000 future drilling locations and 600-plus recompletion "opportunities" in the Devon assets being sold. To make the deal work, Linn is marketing its Granite Wash and Cleveland plays in the Permian Basin's Midland sub-basin and in Western Oklahoma.

"Early in 2014, we outlined four keys to success at Linn: realize value for the Midland Basin position; continue to make accretive acquisitions; reduce capital intensity while increasing efficiency; and improve credit metrics," CEO Mark E. Ellis said. The Devon announcement "is a positive development in achieving these objectives. As we enter into the second half of the year, we remain committed to these important goals."

Linn first began drilling horizontally in the Granite Wash in 2010 and today is operating four drilling rigs in the Granite Wash and Cleveland plays that are producing 230 MMcfe/d of liquids-rich gas. Seventeen horizontal intervals have been tested and developed in the two fields, including shallow oil, liquids-rich Granite Wash and deep Atoka natural gas, over its 147,000 net acre position.The transaction is set to close by the end of September. Jefferies was the lead financial adviser to Devon with Credit Suisse providing advisory support.

Wells Fargo Securities analyst David Tameron said Devon's sale was "ahead of expectations," as the Street was modeling a deal of $1.2-1.4 billion.

"Overall, we view the transaction very favorably as it should be wrapped up sooner" than expectations for 4Q2014 "and at a higher price than expected.” Tameron said.

ISSN © 2577-9877 | ISSN © 1532-1266 | ISSN © 2158-8023

Recent Articles by Carolyn Davis

Comments powered by Disqus