Devon to Monetize Midstream Assets, Buyback More Shares

Devon Energy Corporation DVN decided to sell its 95 million units in the master limited partnership ENLK and 115 million units in the general partner ENLC to an affiliate of Global Infrastructure Partners (“GIP”) for $3.125 billion. This deal will lower Devon’s consolidated debt by nearly 40% and result in a decline in consolidated general and administrative expenses and interest cost by around $300 million annually, thereby boosting its margins.

To Exceed 2020 Vision Target
 
The proceeds from the monetization of the midstream assets combined with that of the non-core E&P assets are already sold, which will enable Devon Energy to exceed its $5 billion divestiture target.

The company continues to work on its 2020 Vision, through which it will introduce advance technology to produce high volumes from wells, continue with its cost-saving initiatives and generate peer-leading returns on invested capital for its shareholders.

Increase in Share Repurchase Program

Devon’s board of directors authorized a $3 billion increase in Devon’s previously announced $1 billion share-repurchase program, bringing the total repurchase program to $4 billion. The company is returning proceeds from the transaction to its shareholders. This will further improve the value of its shareholders.

The $3 billion increase in authorization extends through Dec 31, 2019 and is subject to closing of the EnLink transaction, which is expected to be carried out in July 2018.

Devon utilized $204 million from the earlier share buyback authorization to purchase 6.2 million shares as of Apr 30, 2018. The new authorization will help the company buy back nearly 20% of its total outstanding shares.

Devon’s Focus on U.S. Oil Production

During 2018, Devon plans to invest $2.2-$2.4 billion in E&P activities and the overall capital expenditure for the year will be within $2.3-$6.4 billion. With investments in the higher-margin U.S. oil-producing regions like STACK and Delaware Basin, the company expects 2018 oil production to improve from 2017 levels. Given the ongoing improvement in oil prices, the prospects of the company are definitely going to get a boost as a result.

Price Movement

Devon Energy has returned 31.8% in the past 12 months, outperforming its industry’s rally of 13.5%.

 

Zacks Rank & A Key Pick

Devon currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Anadarko Petroleum Corporation APC, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Anadarko Petroleum delivered an average positive earnings surprise of 89.2% in the last four quarters. Its 2018 earnings estimates moved up 59.6% in the past 60 days to $2.73 per share.

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EnLink Midstream Partners, LP (ENLK) : Free Stock Analysis Report
 
EnLink Midstream, LLC (ENLC) : Free Stock Analysis Report
 
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