[Editor’s note: This story was updated at 4:15 p.m. CST March 8. Check back for additional updates.]
Devon Energy Corp. (NYSE: DVN) propelled itself past its $1 billion divestment goal set less than a year ago with an agreement on March 7 to sell a chunk of assets in the Barnett Shale.
An undisclosed company, which Tudor, Pickering, Holt & Co. (TPH) identified as a private-equity firm, agreed to buy the southern portion of Devon's Barnett Shale position for $553 million. PLS reported the buyer is KKR-backed Fleur de Lis Energy LLC. Net production from the assets located primarily in Johnson County, Texas, currently averages 200 million cubic feet of gas-equivalent per day (MMcfe/d).
In conjunction with the asset sale, President and CEO Dave Hager said the Devon board has authorized a $1 billion share-repurchase program and a 33% increase to the company's quarterly cash dividend. The company also launched a $1 billion note tender, retiring roughly $300 million of maturing debt, according to TPH.
“We are very confident about Devon’s future and, as market conditions permit, we will continue to pursue opportunities to further increase cash returns to our shareholders,” Hager said in a statement on March 7.
In May 2017, Devon launched its “2020 Vision”—a strategic turn away from growth at any cost—with a focus on delivering “top-tier returns” to investors. As a result, the company set a $1 billion sales target and began shedding noncore assets, including divestitures in the Eagle Ford and Delaware Basin.
Devon expected to exceed its original $1 billion divestment target within a year to 18 months and has since bumped up its asset sales goal. The company also had offerings in the Powder River Basin and Stack play.
During the company's earnings call on Feb. 21, Hager said that Devon sees the potential, given its asset base, to monetize more than $5 billion of noncore assets in a "very thoughtful and measured fashion over the next few years."
"Combining these asset sale targets with our free cash flow generation capability at $60 WTI pricing, Devon's total cash inflows in excess of our planned capital requirements over the next three years could range up to 40% of our current market capitalization. As this excess cash flow manifests itself during 2018 and beyond, I emphasize again, we will reward our shareholders through higher dividends and opportunistic share buybacks," he said on the earnings call, according to a company transcript.
TPH said Devon's 33% dividend increase puts the payout at the midpoint of the company management's desired 5%-10% of cash flow range and share repurchase is "timely as the stock sits in earshot of its 2016 lows."
"[Devon will] remain buyers as our asset sale/repurchase thesis continues to play out over the next 6-12 months, with management highlighting another $1 billion of 2018 portfolio pruning (TPHe Texas Delaware and Powder River Basin acreage) and we look to another $3 billion-$4 billion of value from the remaining Barnett and Eagle Ford assets over the medium-term," the firm said in a March 8 note.
Devon will retain a position in the Barnett Shale, primarily in Denton, Wise and Tarrant counties, Texas. The company's remaining Barnett assets include current production of 680 MMcfe/d and an inventory of about 1,500 potential locations, according to its press release.
Scott Coody, a spokesman for Devon, told Hart Energy the fate of the company's remaining Barnett assets is unclear. But he noted that the primary growth engines for Devon center on the Oklahoma Stack play and the Delaware Basin.
“I don’t know that’s been fully decided,” he said.
Devon first entered the Barnett in 2002 through the $3.5 billion acquisition of Mitchell Energy & Development Corp., the company founded by George P. Mitchell who is known as the pioneer of hydraulic fracturing. Devon later added to its Barnett position with a $2.2 billion acquisition from Chief Holdings LLC in 2006.
After first acquiring the Barnett position, Devon was then the first to apply horizontal drilling techniques in the shale play, according to the company website. Since then, the company said it has drilled more than 5,000 wells in the Barnett.
"Good case for them to sell the balance. Johnson County is pretty much all Mitchell legacy acreage... hugely profitable for Devon. Low royalty, great midstream, brilliant rock," Robert Clarke, research director for Lower 48 upstream at Wood Mackenzie, said March 7 in response to Devon's sale on Twitter.
Devon is Johnson County's largest company by value. In 2017, the Johnson County Central Appraisal District put Devon's market value at about $202 million.
Field-level cash flow accompanying Devon’s divested Barnett assets, which excludes overhead costs, is expected to be roughly $100 million in 2018, the company said.
Devon said it expects to close the transaction in second-quarter 2018, subject to customary terms and conditions. J.P. Morgan Securities LLC was the financial adviser to Devon on the transaction and Vinson & Elkins LLP was its legal adviser.
Emily Patsy can be reached at firstname.lastname@example.org. Darren Barbee also contributed to this report.