Devon Energy (DVN)

[dan_s]

Feb 10 (Reuters) - U.S. oil producer Devon Energy Corp said on Tuesday it has hired the U.S. investment bank Jefferies Group LLC to market assets across four major shale basins to raise cash and slash debt.

In December, the large driller said it was looking to raise $2 billion to $3 billion from selling non-core oil assets as well as its 50-percent interest in the Access pipeline in Canada as crude prices plumbed new lows. The target value for the divestiture program has remained unchanged even as oil futures have fallen further, the company said Tuesday.

It also said it would buy some assets from Felix Energy LLC for $2.5 billion.
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This is not a "fire sale" and Devon is not expected to accept low ball bids. It is just part of the plan they announced in December. These regional packages are "company makers" and should draw a lot of interest. - Dan

[dan_s]

I have updated my forecast model for Devon and it will be posted to the EPG website later today.

I have lowered my valuation to $60.55/share, compared to First Call's price target of $42.18/share.

Devon may be the most difficult Sweet 16 company to forecast because of the big Felix Energy acquisition announced in December and pending asset sales. There is a huge difference between the high and low revenue forecasts that other analysts have submitted to First Call. When Devon releases Q4 results on 2/16 we should get some guidance from the company, which will help. At this point, I believe my production forecast errs on the conservative side. They are expected to focus their attention on ramping production in the Eagle Ford, Permian Basin and the STACK play in Oklahoma.

Devon is a big company with current production near 700,000 boe per day. None of their oil production is hedged beyond 2015, but they should still generate enough cash flow from operations in 2016 to cover their $2.5 Billion capital program. They get approximately $200 million cash per quarter from their stake in EnLink Midstream Partners LP (ENLK).

[mkarpoff]

Update please, on today's down day; due to div cut? Buying time?

[dan_s]

I have updated my forecast model and it will be posted to the website later today.

My forecast for Devon is more of a "SWAG" than a forecast at this point because until they complete the non-core assets sales it is just a guess on when production will decline. That said, Devon is clearly oversold. This is a company with a huge asset base and plenty of liquidity. Plus, I believe the STACK play will be a "Crown Jewel" for them.

My valuation drops to $52.50/share, compared to First Call's price target of $42.18.

Devon is still targeting $2-3Bn in combined proceeds from the sale of non-core E&P assets and the Access pipeline sale. I'm 99% sure the pipeline sale will be announced in Q1. The E&P assets for sale produce about 80,000 boepd (50% natural gas). My take is that they do not have to sell the assets, but if they don't it will make the debt holders nervous, especially if oil prices stay this low. If Devon is able to sell then at close to $3 Billion, the share price should double. The assets for sale are "company makers", so they will draw a lot of potential buyers.

Devon is unhedged in 2016, so the first half of this year is going to be tough sledding, but they should generate positive cash flow from operations. After all of the restructuring charges and non-core assets are sold, they should be well positioned for a second half rebound. Cash flows from operations should cover their reduced capital program.

This is the first really big upstream company (over 600,000 boe per day of production) to slash all unnecessary drilling activity.

NOTE that my forecast assumes $60/bbl WTI in 2017. If I lower WTI to $40/bbl and assume it stays there FOREVER, the valuation of DVN drops to around $35/share.

[ddlopata084]

DVN offered 55M shares at $19 after the close. Sounds like the market knew...

[dan_s]

Devon Energy Corporation (DVN) ("Devon" or the "Company") announced today that it intends to commence a registered public offering of 55,000,000 shares of its common stock, subject to market conditions. The Company also expects to grant the underwriters an option to purchase up to 8,250,000 additional shares of stock at the underwriters’ election. Net proceeds from the offering are expected to be used for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program.

Goldman, Sachs & Co. is acting as book-running manager for the offering. The offering will be made only by means of a preliminary prospectus supplement and the accompanying base prospectus, copies of which may be obtained for free by visiting EDGAR on the SEC website at www.sec.gov. Before you invest, you should read the prospectus, the preliminary prospectus supplement and other documents Devon has filed with the SEC for more complete information about the issuer and the offering. Alternatively, copies of the prospectus and the preliminary prospectus supplement relating to the offering may be obtained from Goldman, Sachs & Co., c/o Prospectus Department, 200 West Street, New York, NY 10282, by calling (866) 471-2526 or by email at prospectus-ny@ny.email.gs.com.
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Devon today has 413 million fully diluted shares. Proceeds of $1.2 Billion will definitely improve the balance sheet ratios.

I ran the numbers and it would knock my valuation down to ~ $45/share.