DBRS Comments on Devon Energy’s Asset Sales and Oil Sands Expansion

DBRS notes that Devon Energy Corporation (Devon or the Company, rated BBB (high)) has recently entered into agreements with BP p.l.c. (BP, rated AA (high)) to sell all of its assets in the deepwater Gulf of Mexico, Brazil and Azerbaijan for $7.0 billion. Additionally, BP will assume Devon’s two deepwater drilling rig commitments. The Company will also form a 50/50 joint venture with BP to develop BP’s Kirby oil sands (Kirby) leases in Alberta through a $500 million investment, plus a $150 million carry for the first three years of the project. The Kirby leases, which are adjacent to Devon’s Jackfish in-situ oil sands developments (Jackfish), should add substantially to its potential oil sands bitumen resources as estimated by the Company (first oil potentially by 2016). DBRS expects that the Company’s plans to deploy proceeds from the sales mainly for capital projects and debt reduction should further strengthen its balance sheet and provide funding to accelerate growth for its North America onshore resource plays (Onshore).

The proposed asset sales together with the prior sale of its three lower tertiary assets for estimated $8.3 billion before tax ($6.5 billion to $6.9 billion after tax) should largely complete Devon’s planned divestitures of $4.5 billion to $7.5 billion announced in November 2009. Further proceeds are expected from the remaining international assets to be divested by year end (estimated proceeds of $1.3 billion to $2 billion by Devon). The Company has recently redefined its growth strategy based on its Onshore focus on unconventional natural gas developments, mostly in the United States, and oil sands developments in Jackfish.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website at www.dbrs.com.

This is a Corporate (Energy) rating.