Devon Energy Turnaround Spared by Activists
NEW YORK (TheStreet) -- It took Devon Energy
Devon's woes are similar to those of Chesapeake Energy
Devon sold its Gulf of Mexico assets to BP
This March, Devon completed a merger of its midstream business with Crosstex Energy. The combined company was then spun into general partner and master limited partnership securities, respectively - EnLink Midstream LLC
"We believe this will help unlock value for the company and highlight the value of these assets," Third Avenue Management , a Devon shareholder wrote in October of the spinoff. Devon contributed its midstream assets to the spinoff entities at a valuation of eleven times earnings before interest, taxes, depreciation and amortization (EBITDA), nearly double the company's value of six times EBITDA at the time, Third Avenue added.
Third Avenue Management is among Devon's top-20 shareholders, according to Bloomberg data as of Dec. 31, 2013, and stands out as one of just a few hedge fund investors in the company.
A Push Onshore
To replace those divested businesses, Devon has redoubled its commitment to onshore projects in North America. After acquiring GeoSouthern Energy's assets in the Eagle Ford shale for $6 billion last year, Devon's core assets will consist of the Permian Basin, the Eagle Ford, Alberta oil sands and other onshore assets such as the Mississippi Lime.
Perhaps the restructuring is complete. Devon may now be in a position to grow its oil production significantly and plug cash flow deficits that have stretched into the billions since 2010, according to Goldman Sachs . In that time span, Devon shares have underperformed the SIG Oil Exploration & Production Index by about 25% when factoring in dividends.