Summary
CEO Larry Nichols of Devon Energy said that the sale of some Gulf of Mexico projects will be complete next year. Major oil companies are likely to be the main bidders. The company's data room received interest from international and national oil companies. So far the company is not in talks that would lead to deals with anybody including the Chinese. China's Cnooc is thought to be in talks with StatoilHydro for Gulf of Mexico prospects. Kaskida, St. Malo, Jack and Cascade are to be sold.
Analysis
Like many American independents, Devon Energy has been damaged by the financial crisis as well as the sharp drop in both crude oil and natural gas prices. Devon is the largest shale gas producer in the Barnett play in the Forth Worth basin. The company has a large position in the Woodford shale in Oklahoma. Both of these regions have seen shut ins of natural gas as a result of low prices. Devon lost money in 2008 on write downs of oil and gas assets. This year dramatically lower prices for oil, gas and natural gas liquids caused a loss of $3.6 billion in the first half. As a consequence, the company has reduced expenditures for drilling and related capital expenditures. Plenty of uncertainty still hangs over the oil and gas business both domestically and overseas.Their plan is to continue to invest in projects with better than average rates of return. In the 2008 annual report, CEO Nichols noted that the most important thing for Devon was to manage for long term success. He stressed that financial strength makes a difference. Devon has occasionally disposed of assets when circumstances seemed appropriate. The company disposed of its African properties ar a good price and used the funds to pay down debt and fund projects closer to home. The market for deep water Gulf of Mexico properties looks pretty good right now. By putting them on the block now and closing in 2010, Devon should be in fine shape to face whatever difficulties that the future holds.
