Texas attorneys from three different firms were involved in Devon Energy’s surprise sale of all of its interests in publicly traded entities EnLink Midstream Partners LP and EnLink Midstream LLC to Global Infrastructure Partners for $3.12 billion.
Vinson & Elkins advised Oklahoma City-based Devon with a team led by partner Ramey Layne with assistance from senior associate Crosby Scofield and associates Nettie Downs, Nick Griffin, Mariam Boxwala and Todd Hartis.
Also advising were partners Ryan Carney and Jim Meyer on tax and partner David D’Alessandro and associate Steven Oyler on executive compensation/benefits. They had help from attorneys in the firm’s Richmond, Virginia, Washington, D.C., and New York offices.
Latham & Watkins assisted Global Infrastructure Partners, known as GIP, with a group led by Charlie Carpenter, who offices out of New York and Houston, along with a partner in the firm’s New York office. Associates lending support were Kevin Richardson, Jing Bian, Bryan Ryan and Jack Traylor in Houston.
Houston partner Tim Fenn and associate Bryant Lee worked on tax matters; Houston partner Robin Fredrickson and associates Corey Allen and Betsy More worked on oil and gas issues; and Houston partner Joel Mack worked on environmental matters with an associate in Washington, D.C.
Finance, regulatory, benefits/compensation and antitrust matters were handled out of the firm’s New York and Washington offices.
Simpson Thacher & Bartlett advised Goldman on the financing, including Houston partner Robert Rabalais, counsel Jason Hwang and associate Zach Banks with support from an associate in the firm’s Washington, D.C. office.
Goldman Sachs advised Devon on the transaction and J.P. Morgan provided a fairness opinion to Devon’s board.
Analysts said the purchase represented a 16 percent discount over the interests’ market value.
Devon said the interests generated $265 million in cash distributions over the past year, valuing the transaction at around 12 times cash flow – a big premium over its current trading multiple.
The parties expect to close the transaction in July.
Devon plans to use the proceeds to boost the size of its stock repurchase program by $3 billion to $4 billion, or about 20 percent of its shares outstanding.
Devon’s stock advanced 5.57 percent on the news to close Wednesday at $41.51 per share.
Devon’s ownership interests include 115 million units in EnLink Midstream LLC, the general partner, and 95 million units in EnLink Midstream Partners LP, the master limited partnership.
The company said the transaction will cut its consolidated debt by 40 percent and its general and administrative and interest costs by $300 million per year. The company said the deal won’t result in any additional corporate cash taxes.
Analysts were generally positive on the news, although Seaport Global Securities said the price fell slightly shy of the $3.4 billion the firm had baked into its $50 per share net asset value for the company.
But given the boosted share repurchase plan, debt reduction and cost savings along with additional non-core sales in the Permian, SGS’s analysts see the potential for substantial acceleration in Devon’s debt-adjusted per share production growth, “which we contend is one of the most important determinants of an E&P’s equity performance.”
Analysts at Tudor, Pickering, Holt said they were surprised Devon unloaded its entire EnLink position but noted that the sale will simplify the company’s structure while raising a material amount of cash to buy back stock at a deep discount to intrinsic value.
TPH estimates that Devon’s Permian assets could bring in $1 billion. The firm thinks the company also could tag along with BHP Billiton’s exit in the Eagle Ford, which could yield $2 billion by year-end.
Jefferies midstream analyst Christopher Sighinolfi said that the transaction could lead the EnLink entities to combine, leaving the parent corporation as the surviving entity. The purchase gives GIP about 64 percent of EnLink Midstream LLC and 23 percent of EnLink Midstream Partners LP.
GIP did a similar deal in the past, purchasing the limited partner and general partner of Chesapeake Midstream Partners LP in 2012 that it eventually monetized to a strategic third party buyer, Williams, Sighinolfi said.
Devon CEO and president Dave Hager said in a statement that the sale represents a big step toward achieving the company’s “2020 Vision” to simplify its portfolio and return excess cash to shareholders.
The EnLink proceeds, combined with those from the sale of its non-core exploration and production assets and those being marketed, exceed the company’s $5 billion divestiture goal, Hager said.
As part of this transaction, Devon will extend its fixed-fee gathering and processing contracts with respect to the Bridgeport and Cana plants with EnLink through 2029. The company’s minimum volume commitments for those agreements will expire at the end of this year.