Devon Energy has said that it will be looking to sell its Canadian assets to become a high-return U.S. oil growth business in what analysts described as a ‘long-overdue’ announcement from the U.S. oil company.
Earlier this week, Devon Energy said that its board of directors had authorized the company to pursue the separation of its Canadian and Barnett Shale assets. Devon has retained J.P. Morgan Securities LLC and Goldman Sachs to assist it in exploring strategic alternatives for its Canadian business. The firm expects to complete the separation of the Canadian assets by the end of this year, with data rooms expected to be open by the second quarter.
In the fourth quarter of 2018, Devon Energy’s upstream revenue dropped by 18 percent annually, “impacted by historically wide differentials in Canada, which negatively impacted the realized price on heavy oil production,” the company said, noting that it mitigated the weak pricing environment in Canada through its Western Canadian Select basis swap hedge position.
As Canadian oil production was growing last year, takeaway capacity constraints and maintenance at U.S. refineries in the fall of 2018 drove down the price of Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands—to as low as US$14 a barrel in October and November, with its discount to WTI at around US$50 a barrel.
Devon Energy would be the latest non-Canadian oil firm to sell its oil sands assets in Canada. International oil majors have sold a number of oil sands assets in Canada since 2017, with Shell, ConocoPhillips, and Equinor some of the big companies that relinquished expensive oil sands operations after the low oil prices in 2016.
Devon Energy’s announcement that it wants out of Canada’s oil patch is “long overdue,” St. Louis-based Edward Jones analyst Jennifer Rowland told Financial Post’s Geoffrey Morgan. The U.S. company may even be late to the party of divesting its Canadian business, Rowland noted.
Various analysts briefed by Financial Post expect a wide range of a potential price tag for Devon’s Canadian assets—those range from as low as US$2.65 billion (C$3.5 billion) to as high as US$6.8 billion (C$9 billion). Potential suitors would include Canada-based companies, but analysts diverge on who would bid for Devon’s assets, because some Canadian producers are still heavily indebted from the 2017 acquisitions of oil sands from international majors, while for others, Devon’s operations may not be the best strategic fit.