Devon Reaps $858 Million From Midland Basin Asset Sale

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Oil and gas producer Devon Energy Corp. (NYSE: DVN) announced Wednesday afternoon that the company has agreed to sell $858 million worth of assets in the Midland (Permian) Basin in two separate transactions. Pioneer Natural Resources Co. (NYSE: PXD) is one buyer and the other was not identified.

These sales raise Devon’s total announced sales of noncore assets to $2.1 billion. The company has said that it expects noncore assets sales to total $2 billion to $3 billion, including the sale of its 50% interest in the Access pipeline.

Pioneer is acquiring Devon’s working interest in 28,000 net acres in the northern Midland Basin for $435 million. According to Devon, net production in this “largely undeveloped” area is about 1,000 barrels of oil equivalent per day, of which about 70% is crude oil.

The unidentified buyer has acquired Devon’s assets in the southern Midland Basin for $423 million. Production from this area amounts to about 22,000 barrels of oil equivalent per day, of which 33% is crude oil. Proved reserves in these properties total 43 million barrels of oil equivalent.

Devon CEO Dave Hager said:

At least two-thirds of our asset sales proceeds are expected to be used to further strengthen our investment-grade balance sheet, while one-third are targeted for reinvestment in our best-in-class U.S. resource plays. With the success of our E&P asset sales, we are now in the planning stages to increase our upstream activity by approximately $200 million in the second half of this year. This additional activity will deliver production in early 2017 and beyond. Additionally, we are seeing even better than expected results from our core business and we are raising the mid-point of our full-year 2016 production guidance by 7,000 Boe per day.

Devon plans to deploy the additional capital spending in the Delaware Basin and the STACK play in Oklahoma beginning in the third quarter. The company will add three operated rigs in the quarter and said it is evaluating additional activity in the fourth quarter.

The company raised its full-year production guidance from its core assets to a range of 540,000 to 560,000 barrels of oil equivalent per day.

For its part, Pioneer said it expects to increase its rig count from 12 to 17 and raise its capital spending budget by $100 million to $2.1 billion. The company expects to fund its capex budget from operating cash flow of $1.5 billion, cash on hand and $500 million from the proceeds of the sale of its Eagle Ford midstream business.

Pioneer does not expect a significant impact on production in 2016 from the additional five rigs. In 2017 the company said it anticipates production to grow by 13% to 17%.

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Shortly after Thursday’s opening bell Devon’s stock traded down 0.7%, at $34.83 in a 52-week range of $18.07 to $62.19. The consensus price target on the stock is $39.47.

Pioneer’s stock traded down 3.5% to $156.75, in a 52-week range of $103.50 to $171.88. The consensus price target is $189.19.