Offshore Assets Still Strong

Devon Energy (DVN: 62.79, -0.72) has nearly completed its strategic restructuring. (An offshore Brazil sale to BP is under review by the Brazilians, but most other sales are completed.)

The company is generating over $8 billion (after tax) from sales of its high-capital and riskier assets mostly offshore and in the Gulf. The cash will be used to pay down debt further—with a net debt to cap ratio of 14%, Devon has one of the strongest balance sheets in the sector—and buy back shares.

A program to buy up to $3.5 billion in shares, representing about 12% of the company's outstanding, has been initiated, with some 3% bought back in the last quarter.

Onshore oil and gas going forward Devon is now essentially on North American onshore company, in both exploration and production.

It is also looking to shift towards more oil, with a target of 50/50 (reserves are currently about 60% gas following the sale of offshore, mostly oil, assets), so more capital is being spent on developing some of its oil and liquid gas projects.

It also has significant midstream operations, being one of the largest processors of gas in North America and with thousands of miles of pipelines.

Separately, long-time executive John Richels has been appointed CEO while co-founder Larry Nichols becomes executive chairman.

The stock is inexpensive (part of the reason for the massive share buy-back), particularly on an asset basis, selling at a significant discount by some estimates).

This helps explain why legendary oil man T. Boone Pickens bought shares in the last quarter and makes Devon a potential target for a major wanting to increase North American exposure. It's a long-term buy at the current level.