Devon Energy exits Gulf of Mexico

Gulf of Mexico

America's biggest independent oil and gas producer Devon Energy has announced plans to sell its Gulf of Mexico and overseas assets to raise as much as $7.5 billion for debt reduction and focus exclusively on onshore wells.

The sales will add to earnings, cash flow, production and reserves beginning in 2011, the company said.

"Following the divestitures, Devon will be uniquely positioned to deliver high organic growth on a sustainable basis, funded entirely with internally generated funds," said company CEO J. Larry Nichols.

According to the Devon website, it has been one of the 10 largest oil and gas producers in the Gulf of Mexico, with interests in more than 450 offshore blocks. The two major operating areas in the Gulf - the shallow shelf and the deep water gulf - are both vital to US gas supplies.

"They're getting out of a part of the business they've not been good at"

In 2008, the Gulf of Mexico accounted for approximately 7 percent of Devon's total oil and natural gas production. Oil and natural gas liquids are expected to account for about 43 percent of Devon's estimated proved reserves by the end of 2009.

But the company's time in the region has not been all that successful. "They're getting out of a part of the business that historically, they've not been that good at, not where they've generated their biggest returns," said Ben Dell, an analyst at Sanford C. Bernstein & Co. in New York who rates Devon shares at "outperform" and owns none.

"Right now, prices for asset sales in the international market are extremely strong," he added.

Devon is expected emerge with a stronger balance sheet

But following their exit from the Gulf of Mexico, Devon is expected emerge with a stronger balance sheet and one of the lowest cost structures in its peer group.

The company expects to begin divesting the properties in the first quarter of 2010 and will complete the divestitures throughout next year.

Oklahoma-based Devon reported earlier this month that its sales from oil, gas and natural gas liquids fell 54 percent to $1.17 billion in the third quarter. Significantly lower product prices more than offset the growth in natural gas and liquids production.

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