Devon Energy Corp. has announced a pair of bold moves lately meant to boost its lagging stock performance.
It hasn't happened yet, but industry analysts who follow the Oklahoma City-based company expect Devon's stock to reach as high as $86 a share.
That is nearly $20 more than its highest point in the past year.
Devon's stock closed Friday at $62.58 a share, losing ground for the third straight day since the company announced a $6 billion deal to buy into the lucrative Eagle Ford Shale in south Texas.
Edmond financial adviser Greg Womack said investors seem tentative in embracing Devon's path.
“I think now the markets may be waiting to see how they execute their plan from here,” said Womack, president of Womack Investment Advisers Inc. “If Devon can execute on their growth plan and effectively complete its asset sale process, the stock could be even more attractive.”
Oppenheimer analyst Fadel Gheit said Devon's proposed midstream partnership with Dallas' Crosstex Energy LP will allow the company to focus its spending on its upstream business.
That business will get a big boost from this week's Eagle Ford deal, which Devon estimates gives it access to recoverable resources of at least 400 million barrels of oil equivalent.
“After transforming itself earlier this decade into a pure-play North American onshore E&P (exploration and production company), Devon again is taking bold steps with this acquisition,” Gheit wrote in a note to investors. “It gives the company a sizable, de-risked position in the Eagle Ford Shale, one of the major unconventional oil plays (along with the Bakken) missing from its diversified portfolio.”
He set a price target for Devon's stock at $75 a share.
Canaccord Genuity analyst Robert Christensen was more optimistic, setting his target at $86 in a Wednesday note to clients.
Christensen estimated Devon's production profile will be 40 percent crude oil by 2015, up from only 24 percent before its deal with GeoSouthern Energy Corp.
“We see DVN's transformation as instrumental in helping it achieve a significantly higher valuation for its E&P business,” Christensen wrote.
FBR Capital Markets analyst Rehan Rashid said the GeoSouthern acquisition should add up to $10 a share to Devon's stock price.
He said Devon's continued execution of its business plan should push the stock higher, as the company proves to investors that it has as many as six core operating areas.
Devon CEO John Richels heralded the “new Devon” this week as it will focus on its oily assets in the Eagle Ford, Permian Basin and Canada's oil sands, with liquids-rich holdings in the Barnett Shale and western Oklahoma's Cana Shale.
The company is also intrigued by the potential of emerging plays in Wyoming and central Oklahoma, where it has $1.5 billion of drilling carries from a joint venture with China's Sinopec International Petroleum Exploration & Production Corp. Under the arrangement, Sinopec will finance Devon's drilling expenses during a defined period.
Richels said Devon will sell assets that aren't providing sufficient value for the company.
Devon has been coy about what holdings it might sell beyond its conventional assets in Canada, but Christensen predicts the company will look to unload its east Texas and Gulf Coast assets.
“The divestitures, combined with the addition of the new Eagle Ford properties, should help increase DVN's leverage to crude oil,” he said.
Devon said its new Eagle Ford acreage would have made it the second-largest onshore oil producer in North America last quarter, behind only EOG Resources.
Officials expect to drill 230 wells in the Eagle Ford next year, allowing Devon to increase its oil production by 40 percent in 2014.
“This acquisition clearly adds a new core light oil asset to Devon's portfolio that offers some of the highest rate of return drilling opportunities in North America,” Richels said.