Devon Energy has reached a definitive agreement to divest the company’s 50% stake in Access Pipeline for $1.1 billion dollars to Wolf Midstream, a portfolio company of Canada Pension Plan Investment Board (CPPIB). The terms of the agreement also give consideration to sanctioning and development of a new thermal-oil project on Devon’s Pike lease in Alberta, Canada.
“With the highly-accretive sale of Access, Devon’s divestiture program is now complete with proceeds totaling $3.2 billion, surpassing the top end of our $2 billion to $3 billion guidance range,” said Dave Hager, president and CEO of Devon Energy. “Furthermore, the divestiture proceeds significantly strengthen our investment-grade balance sheet and position us to further accelerate investment in our best-in-class U.S. resource plays, led by the STACK and Delaware Basin.”
As part of the deal, Devon’s thermal-oil acreage is dedicated to the pipeline for an initial 25 years with a market-based toll applied to production from Devon’s three Jackfish projects, which are fully operating. As a result, Devon expects its lease operating expense at the Jackfish complex to increase by $100 million per year.
The agreement also includes the potential for the pipeline toll to be cut by as much as 30% with the development of new thermal-oil projects. Devon’s next potential project is the first phase of Pike, which is next to the Jackfish complex. Devon operates the joint venture leasehold with a 50% working interest. Devon said front-end engineering and design work at Pike’s first phase is complete but the project hasn’t been sanctioned.
Devon intends to use the proceeds from the sale to strengthen its balance sheet and invest in capital programs. The transaction is expected to close in the third quarter. It will be funded through a C$825 million investment from Canada Pension and third-party financing.
Canada Pension
CPPIB, which invests on behalf of Canada’s national pension plan, has said it sees opportunities for long-term investors to take advantage of falling valuations in the energy sector due to a decline in the price of oil. In recent weeks, they have had their foot on the gas and their hand in several deals.
CPPIB holds a 16% stake in Seven Generations Energy who reach an agreement to purchase shale assets in Alberta from Paramount Resources for C$1.3 billion last week.
Teine Energy, who is funded and backed by CPPIB agreed to purchase property from Penn West Petroleum for C$975 million.
