Summary
Devon Energy plans to reposition itself as a high-growth North American onshore company. It will divest all Gulf of Mexico and international assets. Proceeds of the sales will be used to pursue opportunities in the U.S.A. and Canada and to reduce debt. The company will open data rooms and commence divestiture in the first quarter of 2010. Process to be completed by year end 2010. Then, Devon will deliver growth funded entirely with internally generated funds.
Analysis
While uncertainty about the depth and duration of the world financial crisis remains, conditions in the oil and gas industry in the U.S.A. and Canada are slowly but surely becoming clearer. Political momentum favoring increased use of natural gas as a transportation fuel is growing. Modern technology has completely changed the landscape in North America for both oil and gas exploration. Regions once considered barren are being reexamined. Unconventional crude oil plays like the Bakken Share in North Dakota/Montana reveal new commercial prospects. Shale gas drilling, now marginal in many areas, is still profitable in those plays where high rates of production can be obtained, notably the Haynesville and Marcellus. Many of the shale gas fields produce with relatively high liquid content. This vastly improves their economics. Rightly or wrongly, Devon Energy has decided that the current adverse conditions in the North American oil and gas regions present opportunity for those companies that are prepared to cope with them. Devon, of course, is an industry leader in this regard. Getting out of the deep water of the Gulf of Mexico is not a bad decision. While the international majors can cope with the constantly changing Gulf of Mexico economics, for a company like Devon, it makes sense to concentrate on low-risk land based prospects. There are no hurricanes to worry about. Devon 's management has been thinking about this strategic move for some time. The company exited Africa in 2008 after selling assets worth $2 billion. Now they will dispose of the Polvo field in the Campos basin of Brazil plus 9 offshore exploration licenses. Substantial offshore prospects in China will be liquidated as well as interests in Azerbaijan. Risks will be lowered, the balance sheet will be strengthened and management can be centralized. As the new hydrocarbon millennium begins to take shape in North America, Devon can lead the way.
