Devon Energy (DVN) To Exit Canadian Business, Lower Debt
Zacks Investment Research | May 30, 2019 08:46AM ET
Devon Energy Corporation (NYSE:DVN) announced that it has entered into a definite agreement to sell the Canadian business to Canadian Natural Resources Limited (TSX:CNQ) for $2.8 billion (CAD $3.8 billion). Devon Energy intends to utilize the net proceeds from the Canadian asset divestiture to further lower the existing debt. The transaction is expected to close in second-quarter 2019, subject to fulfillment of customary terms and conditions.
Devon’s Transformation
Devon Energy continues to divest non-core assets, and focus on the resource-rich Delaware and STACK assets, which are the backbone of its U.S.-based production. The divestment of Canadian assets is part of the transformation process of the company.
Devon Energy plans to divest Barnett Shale gas assets in North Texas, and utilize total proceeds from Canadian and Barnett Shale to lower up to $3 billion debt by the end of this year. The expected redemption of debts will lower interest expenses of the company by $130 million annually and have a positive impact on margins.
Focus on Lucrative Domestic Oil
Devon Energy is not the only U.S. company that is selling its Canadian business to focus on profitable U.S. shale assets. Marathon Oil Corporation (NYSE:MRO) has already divested Canadian assets to focus on the Permian Basin.
Devon Energy has plans to increase its focus on oil production from the second half of 2019. The company will concentrate in four areas, namely the Permian in West Texas and New Mexico, the Powder River Basin in Wyoming, the Eagle Ford Shale in South Texas, and the STACK play in Oklahoma.
One of the primary reasons behind U.S. companies’ exit from Canadian oil sands assets is higher cost of production from these assets compared with U.S shale assets. Fluctuation in oil prices and saturation of pipeline capacity are the other factors leading to the companies’ decision to exit from Canadian oil sands.
Zacks Rank & Another Key Pick
Devon Energy currently has a Zacks Rank #2 (Buy). Another top-ranked stock from the same Zacks Investment Research
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