Devon Energy mulling midstream move

Devon Energy Corp. is looking into the possibility of creating a midstream master limited partnership to better reflect the value of its assets.
BY JAY F. MARKS jmarks@opubco.com Published: February 22, 2013
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Devon Energy Corp. is turning to an old idea to ensure the value of its assets is properly reflected in its stock price.

CEO John Richels said Wednesday the company is looking into creating a midstream master limited partnership.

“If we have assets that we do not believe are being appropriately reflected in our stock price, we're working to determine how that value might be realized or more appropriately reflected in our stock,” Richels told analysts in Devon's fourth-quarter earnings call. “However, anything we do must be thoughtful and smart and must enhance long-term value.

“We will not pursue a short-lived bump in the stock price at the expense of sustained value creation.”

Devon's stock closed Thursday at $54.88 a share, down $1.69 or almost 3 percent.

Richels said a midstream partnership seems to be a promising opportunity for the Oklahoma City-based oil and natural gas company.

Devon's domestic midstream operations are the largest among U.S. independent producers, with more than 6,500 miles of pipelines, 300 compressor units and eight gas processing plants with net inlet capacity of nearly 1.2 billion cubic feet per day, according to the company's website.

Devon considered a midstream partnership in 2007, but eventually concluded the timing was not right.

“Today, capital markets are deeper, yields in the MLP (master limited partnership) market are lower and structural enhancements have occurred that have caused us to re-examine whether moving midstream assets into an MLP may make sense,” Richels said Wednesday. “We have now retained investment bankers and specialized legal counsel to assist us in that evaluation.”

Edmond investment adviser Greg Womack said spinning off its midstream assets could be beneficial for Devon and its shareholders.

He said master limited partnerships don't pay corporate income tax, so there is more cash available to pay unit holders.

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