DBRS Comments on Devon Energy Corporation’s Joint Venture with Sumitomo Corporation

DBRS notes that Devon Energy Corporation (Devon or the Company; rated BBB (high) and R-2 (high), Stable) has today announced that it has entered into a joint-venture agreement whereby Sumitomo Corporation (Sumitomo) will invest $1.4 billion in exchange for 30% of Devon’s interest in approximately 650,000 net acres in the Cline Shale and the Midland-Wolfcamp Shale. Devon will serve as operator of the assets. The transaction is expected to close in the third quarter of 2012.

Proceeds from the transaction will come in the form of $340 million in cash upon closing, with the remaining $1.025 billion as a drilling carry. The carry will fund 70% of Devon’s capital requirements in the play and is expected to be fully realized by mid-2014.

The transaction is expected to be relatively credit neutral; however, it should provide Devon with increased financial flexibility with decreased capital spending in the plays through 2014.

Notes:
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 under Methodologies.