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November 16, 2009

Devon Energy to sell Gulf of Mexico assets, others

OKLAHOMA CITY — Independent oil and gas producer Devon Energy Corp. said Monday it will divest its Gulf of Mexico and international assets.

Devon expects the divestitures will create after-tax proceeds of $4.5 billion to $7.5 billion. The company plans to use the proceeds to invest in its U.S. and Canadian portfolio and retire debt.

Shares advanced in afternoon trading.

The sales will add double-digit percentage earnings, cash flow, production and reserves beginning in 2011, President John Richels told investor analysts on a conference call.

Devon Energy will spend between $200 million and $275 million for the reorganization, with $175 million to $225 million in 2009 and the remainder next year, he said.

Following discussions with rating agencies, Devon Energy does not expect any ratings changes as a result of its divestiture, Richels said.

In addition, the repositioning of Devon Energy's assets will maintain a "very similar reserve and production balance" between oil and natural gas, he said.

CEO J. Larry Nichols said the company does not believe the value of the assets are adequately reflected in Devon's stock price.

"Following the divestitures, Devon will be uniquely positioned to deliver high organic growth on a sustainable basis, funded entirely with internally generated funds," he said in a statement.

Devon Energy is expected to emerge with a stronger balance sheet and one of the lowest cost structures in its peer group, Nichols said.

The company is active in the Gulf of Mexico and elsewhere internationally and in the United States and Canada, but "pursuing all of these projects in the future would not allow us to optimize any of them," Nichols said in the conference call.

"The repositioned Devon will not be bound by long-term project cycles and can quickly redeploy capital as appropriate, based on cash flow and project performance," he said. "When the dust settles, the repositioned Devon will emerge as a self-funding exploration and production company with high rates of growth."

The company expects to begin divesting the properties in the first quarter of 2010 and will complete the divestitures throughout next year.

Devon's Gulf of Mexico and international properties represent about 7 percent of its companywide proved reserves of 2.8 billion barrels of oil equivalent. Oil and natural gas liquids are expected to account for about 43 percent of Devon's estimated proved reserves by the end of 2009.

The company's balance between liquids and natural gas will change only slightly as a result of the divestiture, Devon said.

Devon Energy, which is based in Oklahoma City, reported earlier this month that its sales from oil, gas and natural gas liquids fell 54 percent to $1.17 billion in the third quarter. Significantly lower product prices more than offset the growth in natural gas and liquids production.

Shares rose $3.66, or 5.4 percent, to $71.45.

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