KGOU

Devon To Sell $1B In Assets To Invest In More STACK Play Wells

May 5, 2017

 


 

Oklahoma City-based Devon Energy announced it will sell over one billion dollars in assets over the next year.

Devon CEO Dave Hager explained on Wednesday that the Oklahoma City-based company is planning to sell 20 percent of its producing wells and land leases in Johnson County, Texas, on the edge of the Barnett Shale. The Journal Record’s Sarah Terry-Cobo writes dry gas plays, such as in Johnson County, are not as profitable as areas that produce oil and gas.
 

Workers will continue to evaluate which drilling regions can generate the highest returns as the company considers where else it plans to sell wells and leases.

“As we further appraise these, we will consider additional divestment as appropriate,” Hager said. “This is a signal of how we might move in the future.”

During his weekly conversation about business in Oklahoma, Journal Record editor Ted Streuli told KGOU that Hager was to sell the assets while they are still profitable.

“Devon wants to take the cash out of those and spend it on new projects instead of incurring any new debt. So, while the wells they’re selling are good, they think the ones they can drill elsewhere will be great,” Streuli said.

The new drilling will take place in Oklahoma’s STACK play, and in New Mexico.

The STACK basin runs from roughly central Oklahoma toward the Panhandle, north of I-40 and west of I-35. The nearby SCOOP formation is south of that. It’s also west of I-35, but it’s mostly south of I-40 and goes south toward Ardmore

Streuli says energy analyst Fadel Gheit of Oppenheimer & Co. Inc. is skeptical Devon will make one billion dollars from the sale.

“The analysts we talked to said they’ll believe the billion dollar figure after the sales close, but they’re very positive about Devon going after new wells without incurring any new debt,” Streuli said.

TRANSCRIPT:

Jacob McCleland: Ted, Devon Energy CEO Dave Hager says these oil wells and land leases are still profitable. Why does he want to sell them?

Ted Streuli: They are profitable, but Devon wants to take the cash out of those and spend it on new projects instead of incurring any new debt. So, while the wells they’re selling are good, they think the ones they can drill elsewhere will be great.

McCleland: Journal Record reporter Sarah Terry-Cobo writes the company plans to sell 20 percent of its wells and land leases in Johnson County,  Texas, on the Barnett Shale. Is this area just not productive anymore?

Steuli: It’s still productive, but the dry gas plays like the Barnett can’t compete with areas that have both oil and gas because in recent years oil has been a much more attractive commodity.

McCleland: What will Devon do with the money it raises from selling these assets?

Streuli: They’ll invest in new wells in the STACK play, where they think the potential is really tremendous

McCleland: Well let’s talk a little about the STACK play, that STACK basin. It’s often mentioned in the same breath as the SCOOP basin. Quickly, could you describe for us what the SCOOP and STACK are?

Streuli: Sure, the STACK runs from roughly central Oklahoma up toward the panhandle, sort of north of I-40 and west of I-35. The SCOOP is south of that. It’s also west of I-35 but it’s mostly south of I-40 and goes down toward Ardmore

McCleland: By selling off assets before investing in the STACK basin and in New Mexico, as Devon plans to do, the company can avoid taking out debt. Why is that important to drillers today?

Streuli: Investors always want to see growth in drilling activity, but when it comes down to it, they want to see growth in profits. Devon thinks the STACK play, which offers abundant oil plus some gas will make more money than the primarily gas wells they’re selling off.

McCleland: What do outside analysts think of Devon’s plan? Do they think it will be successful?

Streuli: As always, they’re a little bit skeptical. The analysts we talked to said they’ll believe the billion dollar figure after the sales close, but they’re very positive about Devon going after new wells without incurring any new debt.

McCleland: Another Oklahoma City company announced its plans for the SCOOP and STACK plays this week as well. Enable Midstream Partners plans to build a new pipeline to accommodate drilling in this area. Where will the pipeline be located?

Streuli: The new pipeline will go from central Oklahoma, really the STACK play, down to Johnson County, Texas, where there’s a natural gas hub

McCleland: When will it be built and how much will it cost?

Streuli: Well, they’ll start building pretty soon. It should be ready to move that gas sometime next year. It will cost several hundred million dollars.

McCleland: What do outsider analysts say about the SCOOP  and STACK play? Do they think drilling activity is going to pick up?

Streuli: They and the drillers are very, very positive about those plays and they predict a great deal of new drilling activity. And that’s really very good news for Oklahoma.

The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.

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