Devon Energy could make less (or more) from restructured deal to sell its Barnett Shale field holdings
Devon Energy has restructured a planned sale of its Barnett Shale assets and extended the closing date with the potential buyer.
The reworked deal between Devon and Banpu Kalnin Ventures (BKV), announced after markets closed Tuesday, reduces the initial price agreed upon for the asset from $770 million to $570 million.
The amended agreement also changed the closing date from April 15 to Dec. 31.
However, Devon ultimately could come out ahead on the sale in one of two ways.
If natural gas reaches a price of $2.75 a million British thermal units at the Henry Hub, or West Texas Intermediate Crude oil reaches $50 a barrel during a four-year-period that begins Jan. 1, BNK will be required to make contingency payments to Devon.
Devon could receive an additional $260 million, bringing the total purchase price to $830 million, company officials said.
The company seeks to sell its Barnett Shale holdings, which primarily produce natural gas, to complete a transition into being an oil shale company focused on producing from fields inside the Lower 48 of the United States.
Devon sold its Canadian operations, which produced oil using steam-assisted gravity drainage, for $2.8 billion in 2019.
In the Barnett, Devon successfully combined horizontal drilling and hydraulic fracturing to commercially produce fossil fuels from shales.
Over time, Devon and other companies adopted the practice to produce natural gas, liquids and oil from other shales in North Dakota, Colorado, Ohio, Pennsylvania, New Mexico, Oklahoma and Texas.
The north Texas asset includes more than 4,200 producing wells across 320,000 acres.
BKV, Kalnin Ventures is solely-backed by Banpu Pcl, a Thailand-based coal mining and power generation company with total assets of about $8 billion, officials said.
Last month, Devon cut its capital expenditures budget for a second time so far this year, resetting its plans to spend only about $1 billion by deferring some activities it planned in its Eagle Ford Shale operational area.
Officials hope the company will be able to fund its capital expenditures for the year using expected cash flow, provided prices didn’t continue to spiral.
Andrew Dittmar, Enverus’ senior mergers and acquisitions analyst, said Devon’s announced restructuring of the planned sale is no surprise.
Companies involved in similar deals during early 2016 were taking the same types of steps to keep them from falling apart, Dittmar said.
“It is a pretty reasonable adjustment, given the market we are in,” Dittmar said, adding that Devon also was able to negotiate an improved severence payment if the deal falls apart.
“The commodity market is entirely different now than it was when the deal was announced in December,” he said.
The deal, Dittmar said, “is something both sides can live with.”