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Morningstar | Devon Is Selling Its Canadian Heavy Oil Assets to Canadian Natural Resources

Devon is currently focused on its franchise assets in the Stack oil play in western Oklahoma and the Delaware portion of the Permian Basin. With more than 10,000 gross risked drilling opportunities split fairly evenly between these two plays, Devon has a multidecade runway of development ahead, even as rig counts ramp up in the years to come.In the Delaware, Devon is accelerating its development activity, with additional drilling rigs likely to be added in 2019. Devon has about 300,000 net acres in the Delaware that it believes holds 6,500 gross risked drilling locations. Devon has primarily focused on the Bone Spring formation to this point and has further resource upside with Wolfcamp delineation. In the Stack, a less mature play, Devon seems to be still working out the kinks in its development plan, namely spacing, but the company isn’t far away from entering full-field development mode. Delaware and Stack assets should drive a mid-teens compounded annual growth rate for Devon’s U.S. oil production to the end of the decade.Other notable non-franchise assets include shale acreage in the Eagle Ford and Powder River Basin. The Eagle Ford is a more mature play and should provide opportunities to drill high-return wells, but the company’s runway of future opportunities is much shorter than in the Delaware and Stack. The PRB is an emerging growth opportunity for Devon, while the company’s oil sands operations in Canada should be viewed as a non-growth cash-generating asset. In early 2019, Devon's board had approved the separation of its Canadian and Barnett assets. Since then, the Canadian assets have been sold to Canadian Natural Resources, with the transaction expected to close in the second quarter of 2019.In 2018, Devon sold ownership interests in its EnLink midstream business for more than $3 billion and has also divested more than $1 billion in noncore upstream assets. In combination, Devon announced a $4 billion share buyback plan. The company has a solid balance sheet and management has prioritized free cash flow generation and returning cash to shareholders.