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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 Published: February 22, 2013

“The yields are much higher for unit holders of MLPs,” said Womack, president of Womack Investment Advisers Inc. “With Devon's stock yield currently at 1.4 percent, many MLPs are paying out 4 percent to 6 percent or more.”

Womack said Devon's stake in the proposed midstream partnership could be used to fund additional drilling opportunities in areas of higher return, like the oil-rich Permian Basin in west Texas.

“Subsequent sale of more pipelines and processing plants to a partnership could be used to accelerate operations in key fields, and even be used for stock buybacks, creating potential for even more value for shareholders,” he said.

“If they continue to control operations from the sale of these assets, there is little downside in the deal.”

The master limited partnership route has been successful for other state companies, including Williams and Chesapeake Energy Corp.

Chesapeake created Chesapeake Midstream Partners in 2009, selling a 50 percent stake to New York-based private equity firm for nearly $600 million.

Last year, Chesapeake sold its stake in its former subsidiary in a deal that netted a pretax gain of about $1.3 billion, the company's chief financial officer said in Thursday's earnings call.

“Our midstream exit enabled us to redirect the company's strategic focus and capital resources into our upstream oil and gas operations,” Nick Dell'Osso said. “We originally entered the midstream business at a time when the midstream industry's knowledge and appetite for capital growth and unconventional assets was limited.

“Entering midstream proved to be profitable and strategically important.”