Devon Energy Corp. (NYSE: DVN) is attempting a strategy that has worked in some cases very well for its peers. The independent exploration and production company’s board of directors now has approved a plan to form a publicly traded midstream master limited partnership (MLP) to attract shareholder value. This effort will be aimed at bringing in the traditional dividend investors, as MLPs have high distributions via a return of capital and via distributing income.
The MLP is expected to own a minority interest in Devon’s domestic midstream business, which includes natural gas gathering and processing assets located in Texas, Oklahoma and Wyoming. Just be advised that this will not come immediately as the company said that it plans to file the U.S. Securities and Exchange Commission (SEC) registration statement in the third quarter of 2013.
The MLP, business of which will include natural gas gathering and processing assets in Texas, Oklahoma and Wyoming, likely will file a registration statement with the SEC in the third quarter of 2013, and depending on market conditions Devon said an offering of partnership units in the MLP would follow.
Read also: MLP Risks Under Rising Interest Rates
Devon’s press release showed that it will own the general partner of the MLP, all of its incentive distribution rights, and a majority of its common units following completion of the initial public offering. It also said that it expects to use the sale proceeds from MLP common unit offering to fund its continuing operations. We also expect that Devon will have to be very muted about the developments here because Devon said, “Due to limitations imposed by U.S. securities laws, Devon will not be holding a conference call to discuss the content of this release.”
Devon shares are down on the news by 1.5% to $55.77, with a $22.6 billion market capitalization. Its 52-week trading range is $50.81 to $63.95, and the consensus analyst price target is $70.35, according to Thomson Reuters. Devon’s common stock dividend yield is only 1.5%, and we have no way to judge what sort of MLP distribution “yield equivalent” will be as of yet.
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