Page 9 - NorthAmOil Week 15

NorthAmOil INVESTMENT NorthAmOil
Devon amends
agreement for sale
of Barnett assets
TEXAS
US independent producer Devon Energy announced this week that it has amended an agreement it originally struck in December 2019 to sell its assets in the comparatively mature Barnett shale to Thai-backed Banpu Kalnin Ven- tures (BKV).
When the agreement was first announced, the two companies had agreed on a price tag of $770mn, with the transaction due to close in the second quarter of 2020. According to Devon’s April 14 update, total proceeds from the deal could now amount to up to $830mn but this is dependent on how oil and gas prices behave in the coming years. The deal will now be comprised of $570mn in cash, potentially fol- lowed by contingent payments of up to $260mn. The deadline for closing the deal has also been extended to December 31, 2020, from April 15 previously.
The contingent cash payments under the amended deal will be based on future commod- ity prices. Upside participation will begin at a Henry Hub gas price of $2.75 per million British thermal units ($76.07 per 1,000 cubic metres) or a West Texas Intermediate (WTI) price of $50 per barrel, Devon said.
The contingent payment period is scheduled to begin on January 1, 2021, lasting for a period four years.
Under the amended terms, Devon is now set to receive an increased deposit of $170mn from BKV, which is backed by Thai coal mining and power generation company Banpu.
The closing of the deal will mark Devon’s exit from the Barnett shale gas play in North Texas as it completes its transition into a business solely focused on US oil. The company also exited Can- ada’s oil sands last year, selling its steam-assisted gravity drainage (SAGD) assets to Canadian Natural Resources Ltd (CNRL) for $2.8bn.
Interest in the Barnett has been on the decline for some time as gas prices have remained con- sistently low and many producers opted to focus on liquids-rich assets. There is, however, specu- lation that if gas prices rise considerably, it could revive plays such as the Barnett thanks to its proximity to the US Gulf Coast, where demand from LNG export terminals is on the rise.
Devon is not the only producer to seek an exit from the Barnett recently. Smaller player Har- vest Oil & Gas closed the sale of “substantially all” of its remaining assets in the play in Decem- ber 2019 for $6.2mn. The company also noted impairment charges related to its operations in
the Barnett, among other regions.
The amendment to Devon’s agreement
with BKV comes shortly after the US com- pany joined a number of other shale drillers in announcing a second downward revision to its capital expenditure budget for 2020. Devon was initially planning to spend around $1.8bn this year, but reduced this by $500mn – or around 30% – on March 12. The company followed up by announcing a further $300mn cut to its spending plan on March 30, with the revised capex budget of $1bn representing a reduction of nearly 45% compared to its original guidance for 2020.
Devon has warned that it was prepared to make further reductions to its spending if oil and gas prices remain unfavourably low.
“Our top priority in this environment is to protect Devon’s financial strength and liquidity,” said Devon’s president and CEO, Dave Hager, in the company’s March 30 statement. “Our deci- sive actions to date have allowed us to rapidly recalibrate drilling and completion activity to ensure we can fund all our 2020 capital require- ments within cash flow. We will continue to assess market conditions and adjust activity lev- els as necessary to ensure the long-term viability of our business.”™
Interest in the Barnett shale has been on the decline for some time.
Devon has warned that it was prepared to make further reductions to its spending
if oil and gas prices remain unfavourably low.
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