S&P cuts Devon Energy

S&P said it downgraded the ratings on Devon Energy Corp. and its senior unsecured debt to BBB- from BBB.

Devon announced it agreed to sell its Barnett shale assets for $770 million to Thailand investor-backed private equity company Banpu Kalnin Ventures. At the same time, the company announced a $1 billion increase to its share repurchase authorization.

“The downgrade reflects our reassessment of Devon’s business risk profile following the sale of its Barnett and Canadian assets, which brings total proved reserves and production down to levels more in line with BBB- rated peers,” said S&P in a press release.

Pro forma for the divestitures, Devon’s year-end 2018 proved reserve base would have been 823 million barrels of oil equivalent (boe), about 36% natural gas and nearly two-thirds proved developed, with current production of 325,000 boe per day (30% natural gas). The remaining assets will be focused on unconventional oil shale, which although more profitable at current commodity prices than Devon’s previous portfolio, will require significant ongoing investment to offset steep natural declines.

The outlook is stable.

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