BP has walked away from a potential deal to buy Devon Energy's Eagle Ford Shale assets, according to a Reuters report cited by The Motley Fool. The news sent Devon shares down 3.6% and comes as activist investor TOMS Capital pressures the company to sell assets or the entire business.
Devon faces pressure to sell
TOMS Capital Investment Management, an activist hedge fund led by Noam Gottesman, built a stake in Devon Energy over the last three months and now says it is one of the company's top-5 shareholders. In a letter to management, revealed on Wednesday, the fund argued that Devon's merger with Coterra Energy left it with a bloated, overly complex portfolio spanning the Delaware Basin, the Marcellus Shale, the Eagle Ford Shale, the Anadarko Basin, the Williston Basin and the Powder River Basin.
The fund says that sprawl has pushed Devon to a valuation discount against its peers. Another major investor, Kimmeridge, has voiced similar concerns but has stopped short of calling for an outright sale of the company.
BP exits the data room
Under CEO Meg O'Neill, who took the role in April, BP has refocused on oil and gas and had reportedly entered the data room for several shale assets on the market, including Devon's Eagle Ford holdings. Analysts at TPH Research suggested on Wednesday that those assets could be worth about $4.5 billion.
But Reuters reported that BP has since decided to walk away. In a statement, BP did not confirm or deny the report but alluded to its "commitment to maintaining capital discipline."
A tricky moment to price shale
BP already holds shale assets in the Eagle Ford, Permian and Haynesville basins, so buying nearby Devon acreage would have fit its footprint. Yet the company seems more focused on cutting debt and making its own divestments, and its capital-discipline comment suggests it was wary of overpaying.
U.S. shale sits far from the turmoil of the war in Iran but still benefits from elevated global oil prices, and it is unclear how long that war, and the price support it provides, will last. Losing a prospective buyer suggests Devon may struggle to meet TOMS Capital's divestiture demands. Devon's stock closed down 3.6% on the news, while BP's stock slipped 0.4%.
Source: The Motley Fool
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