Devon Energy’s stock rallies over 8% on asset sales and cost reduction plans

Devon Energy Corp.’s (DVN) stock jumped 8.8% during mid-day trade on Wednesday after the company laid out its transformation plans, which include the separation of a portion of its assets as well as cost reduction efforts.

Devon has decided to either sell or spin off its Canadian and Barnett Shale assets in order to focus more on its high-return US oil assets. This decision is in line with the company’s long-term strategic plan and the process is expected to be complete by the end of 2019.

“New Devon will emerge with a highly focused US asset portfolio and has the ability to substantially increase returns and profitability as we aggressively align our cost structure to expand margins with this top-tier oil business. The New Devon will be able to grow oil volumes at a mid-teens rate while generating free cash flow at pricing above $46 per barrel,” CEO Dave Hager said in a statement.

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Devon increased its total share repurchase program to $5 billion from the previous $4 billion and increased its quarterly dividend by 13% to $0.09 per share. The company is also looking to deliver at least $780 million in annual cost savings by 2021, and expects to achieve around 70% of these reductions by the end of 2019. Devon expects its efforts to drive down per-unit cash costs more than 20% by 2021.

Devon’s highly concentrated US oil business is expected to generate 13-18% oil growth in 2019, with 10% less upstream capital than 2018, and is self-funded at $46 oil prices.

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