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Devon sells $858mn in Texas assets

15 Jun 2016 22:58 (+01:00 GMT)
Devon sells $858mn in Texas assets

Houston, 15 June (Argus) — Devon Energy will sell its remaining non-core assets in the Midland basin of Texas for $858mn in yet another sign of a revival in US oil and gas deal activity as prices have recovered.

Pioneer Natural Resources separately said it is buying about 28,000 acres from Devon for about $435mn. The latest deal brings Devon's total non-core sales to $2.1bn, it said. Earlier this month, the independent said it had agreed to sell assets worth nearly $1bn.

US oil and gas asset acquisitions may rise amid a recovery in prices as those deals offer producers a quick way to replace their reserves, which have sharply depleted following two straight years of steep cuts in capital expenditure (capex). A recovery to around $50/bl and relatively stable prices in recent weeks is giving potential buyers greater comfort on the outlook of the market, allowing them get a better handle on asset valuations.

Asset sales and the near doubling in oil prices since the lows of below $30/bl touched in the first quarter are helping producers pay down debt to shore up their balance and also plan for a step up in capital expenditure (capex) to gradually step up drilling activity.

"At least two-thirds of our asset sales proceeds are expected to be used to further strengthen our investment-grade balance sheet, while one-third are targeted for reinvestment in our best-in-class US resource plays," Devon's chief executive Dave Hager said.

Devon's deals include the sale of its working interest across 15,000 net acres in Martin county, along with 13,000 acres in eight surrounding counties for $435mn. Current net output associated with this largely undeveloped leasehold is about 1,000 b/d of oil equivalent (boe/d), with oil accounting for 70pc. Separately, Devon also agreed to sell assets in the southern part of the basin for $423mn with output of about 22,000 boe/d, with 33pc oil.

Pioneer said part of the assets it acquired "sit directly below" its existing acreage in the Wolfcamp A area. The purchase is part of a plan detailed during its first quarter earnings call in April to buy acreage adjacent to its existing prime locations to drill longer lateral well to save costs and improve output. At current prices, the company expects to earn a 50pc internal rate of return before taxes from that area.

In addition to the asset sales, both Pioneer and Devon are deploying additional rigs and stepping up their capex for the year. Pioneer plans to increase its horizontal rig count by five rigs to 17 rigs in the northern Spraberry/Wolfcamp area of the Permian basin, with the first addition in September, followed by two each in October and November. As a result, its 2016 capital budget will increase by about $100mn to $2.1bn. But overall output growth this year is expected to hold steady around its earlier forecast of around 12pc, with an increase of 13-17pc in 2017 at the same count.

Devon raised its 2016 capex guidance by $200mn to $1.1bn-$1.3bn, as it adds three rigs in the third quarter. The additional capital will be deployed in its Delaware Basin and in Oklahoma. As a result, it raised 2016 output guidance from its core assets by 7,000 boe/d to 540,000-560,000 boe/d.