Energy Prospectus

March 7 (Reuters) - U.S. oil and gas producer Devon Energy Corp on Wednesday boosted its dividend payout and said it would sell a shale asset to raise cash and reduce debt.

Devon hiked its dividend to 8 cents per share from 6 cents.

It plans to sell the southern portion of its Barnett Shale position for $553 million.

The company also said it would buy back $1 billion in shares.

Devon Energy Corp. (DVN) announced today it has entered into a definitive agreement to sell the southern portion of its Barnett Shale position for $553 million. The transaction is subject to customary terms and conditions and is expected to close in the second quarter of 2018.

“Combined with other recent asset sales, divestiture proceeds associated with our 2020 Vision have now reached $1.0 billion,” said Dave Hager, president and CEO. “In conjunction with this asset sale, and consistent with our strategic plan, we announced today in a separate release that our board has authorized a $1.0 billion share-repurchase program and a 33 percent increase in Devon’s quarterly cash dividend. 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.”

Net production from the southern Barnett divestiture assets, which reside primarily in Johnson County, are currently averaging 200 million cubic feet of gas-equivalent per day. Field-level cash flow accompanying these assets, which excludes overhead costs, is expected to be approximately $100 million in 2018.

The company’s remaining position in the Barnett Shale primarily resides in Denton, Wise and Tarrant counties, with current production of 680 million cubic feet of gas-equivalent per day. This position contains an inventory of approximately 1,500 potential locations, consisting of undrilled inventory and horizontal refrac opportunities.

J.P. Morgan Securities LLC acted as the financial advisor to Devon on the transaction. Vinson & Elkins LLP acted as legal advisor to Devon.

Based on my forecast/valuation model (adjusted for this sale), Devon will generate at least $1 Billion in free cash flow from operations in 2018. More than enough to fund the stock buyback program.

DVN closed at $30.95 on March 7.

In the last 3 months, 13 ranked analysts set 12-month price targets for DVN. The average price target among the analysts is $47.92.

Since Devon announced Q4 results, seven ranked analysts have submitted revised forecast/price targets to Reuters (First Call). Six of them rate it a BUY with price targets of $35 to $53. Three of the seven have price targets over $50.

My valuation, assuming the Barnett Shale sale closes and they follow through on the share buyback, will be over $50/share.