U.S. oil and gas company Devon Energy Corp will sell its 50 percent stake in a pipeline in Western Canada for US$1.1 billion ($1.4 billion) to a midstream company backed by the Canada Pension Plan Investment Board, completing its divestiture plan announced in December.
Shares of Devon rose 2 percent in pre-market trading on Thursday.
“…Devon’s divestiture program is now complete with proceeds totaling $3.2 billion, surpassing the top end of our $2 billion to $3 billion guidance range,” Chief Executive Dave Hager said.
Oil prices are yet to fully recover from the slump last year, forcing companies in the sector to sell non-core assets to lower debt and finance new projects.
This has given investment firms, including CPPIB, a chance to buy assets at attractive valuations.
In the past month, CPPIB, which invests on behalf of Canada’s national pension plan, has acquired assets from Canadian producers Penn West Petroleum Ltd and Paramount Resources Ltd through companies it holds stake in.
Devon will use the proceeds of the sale of stake in Access Pipeline to Calgary-based Wolf Midstream Inc to finance drilling activity in the U.S. shale fields, including the Stack basin in Oklahoma and the Delaware basin, Hager said.
The company will continue to use the pipeline, which carries heavy oil across northeastern Alberta, for a fee. This is expected to push up the annual lease operating costs at Devon’s Jackfish complex by about US$100 million.
After the deal closes in the third quarter, Devon’s pipeline assets will be limited to those held through its master limited partnership EnLink Midstream Partners LP.
Devon’s partner in the Access pipeline system, Calgary-based MEG Energy Corp, has also been looking to sell some or all of its stake.
MEG Chief Executive William McCaffrey said in April that talks were progressing on the sale, adding that more than one party was interested in the asset.
Devon shares were trading at US$39.80 before the bell. Up to Wednesday’s close, the stock had risen by about a quarter this year.
Update: Wolf Midstream said that the Access Pipeline acquisition will be funded by an $825 million investment from CPPIB, as well as third-party debt financing.
CPPIB’s partnership with Wolf emerges from a September 2015 agreement to a create midstream investment vehicle focused on acquisitions and other deal opportunities in Western Canada.
(Reporting by Amrutha Gayathri in Bengaluru; Editing by Don Sebastian and Kirti Pandey)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Reuters/Nick Oxford