Devon Energy To Exit Barnett Shale In $770 Million Sale

Devon Energy Corp. reached an agreement on Dec. 17 to exit the Barnett Shale in a $770 million sale, making good on a promise the Oklahoma City-based company made earlier this year to transition its portfolio to oil.

The Barnett, one of the largest natural gas fields in Texas, had historically been a cornerstone asset for Devon. After acquiring a substantial position in 2002 through its acquisition of a company founded by George P. Mitchell—largely regarded as the father of the shale revolution, Devon was the first to apply horizontal drilling techniques in the Barnett, according to the company website.

However, with its sights set on increasing returns, Devon laid out plans in February 2019 to transform into a U.S. oil growth business. This included the possible sale or spin-off of its assets in the Barnett and Canada, the latter of which the company sold to Canadian Natural Resources Ltd. in a multibillion-dollar transaction that closed in June.

In statement on Dec. 17, Devon CEO Dave Hager declared Devon’s transformation to a U.S. oil growth business now complete. Along those lines, the company also announced a new $1 billion share-repurchase program, bringing the total repurchase authorization to $6 billion.

“The timely and tax-efficient exit from Canada and the Barnett this year has generated $3.6 billion of proceeds at accretive multiples to Devon’s current valuation,” Hager said. “Furthermore, these transactions accelerate efforts to focus exclusively on our resource-rich U.S. oil portfolio, where we have the ability to substantially increase returns, margins and profitability.”

Following close of the Barnett transaction expected second-quarter 2020, Devon’s business will focus on core positions in four basins: the Delaware Basin in the Permian, Oklahoma’s Stack play, Powder River Basin and Eagle Ford Shale.

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The buyer of Devon’s Barnett position is Kalnin Ventures LLC, a gas-focused investment vehicle backed by Thailand-based coal mining and power generation company Banpu Pcl. Since its formation in 2015, Kalnin Ventures has focused its efforts in the Marcellus and the transaction with Devon marks its entry into the Barnett.

The transaction with Devon includes over 320,000 gross acres and 4,200 producing wells, making Kalnin Ventures the largest natural gas producer in the Barnett Shale, according to a company release.

Net production from Devon’s Barnett Shale properties averaged 597 million cubic feet equivalent per day in third-quarter 2019. At year-end 2018, proved reserves associated with the properties amounted to about 4 trillion cubic feet equivalent (Tcfe). The transaction has a Sept. 1 effective date.

“We are excited to announce this acquisition in the Barnett Shale, as this continues our strategy of PDP (proved developed producing) weighted cash flow yielding investments, where we can leverage technology to drive operational performance,” Christopher Kalnin, managing director and founder of Kalnin Ventures, said in a statement.  “Devon has done wonderful work in the Barnett Shale and we look forward to continuing that tradition, delivering high-quality returns for many years to come.”

Devon initially entered the Barnett Shale through the 2002 acquisition of Mitchell Energy & Development Corp. for $3.5 billion in cash and stock, which also included the assumption of $400 million in debt. The original deal included 2.5 Tcfe of proved reserves plus midstream assets valued at $800 million to $1 billion.

Jefferies and Citi were financial advisers to Devon on the Barnett Shale transaction with Kalnin. Vinson & Elkins LLP acted as its legal adviser. Willkie Farr & Gallagher LLP acted as legal adviser to BKV Oil & Gas Capital Partners LP, of which Kalnin Ventures is an affiliate.