Summary
Devon Energy Corporation (DVN) announced a significant amendment to its agreement to sell its Barnett Shale assets. On April 13, 2020, a subsidiary, Devon Energy Production Company, L.P., entered into a First Amendment to the Purchase and Sale Agreement with BKV Barnett, LLC. This amendment substantially alters the financial terms of the divestiture, reflecting the challenging commodity price environment at the time. Investors should note the reduction in the upfront cash payment and the introduction of an earnout structure tied to future commodity prices.
Key Highlights
- 1Reduced upfront cash payment for Barnett Shale assets from $770 million to $570 million, subject to adjustments.
- 2Introduced an earnout mechanism allowing Devon Energy to receive up to $260 million in additional payments over four years (2021-2024) based on achieving specific WTI oil and Henry Hub natural gas price thresholds.
- 3Extended the closing date for the asset sale from April 15, 2020, to December 31, 2020, providing flexibility given market conditions.
- 4Increased the deposit amount from $70 million to $170 million, payable by the purchaser by April 30, 2020, signaling continued commitment from the buyer.
- 5The lowest annual commodity price hurdles for the earnout are $50.00 WTI for oil and $2.75 Henry Hub for natural gas.
- 6The company issued a press release on April 14, 2020, to disclose these amendments.
Frequently Asked Questions
The amendment was likely a response to the volatile and declining commodity price environment in early 2020. Reducing the upfront payment and introducing an earnout structure allows Devon to realize some value upfront while retaining upside potential if energy prices recover to certain levels.
The amended agreement includes an upfront payment of $570 million (subject to adjustments) and potential earnout payments of up to $260 million. Therefore, the total potential consideration could reach $830 million, contingent on achieving specific commodity price targets over a four-year period.
The closing date has been extended from April 15, 2020, to December 31, 2020. This provides a significantly longer period for the transaction to be completed, subject to certain rights to accelerate or extend.
For each year during the 2021-2024 earnout period, the lowest thresholds are an average daily WTI oil price of $50.00 and an average daily Henry Hub natural gas price of $2.75. Meeting higher thresholds could result in larger earnout payments, up to the maximum of $260 million.