Highlights of Magnetar Capital's New Exposures in 4Q14 (Part 2 of 5)

(Continued from Part 1)

During 4Q14, Magnetar added a new position in Devon Energy (DVN)—an energy and power company. Magnetar purchased around 1.4 million shares in Devon Energy. The position represented 1.61% of the fund’s portfolio.

The fund’s exposure to the energy sector was well over 60%. It had chief positions in Spectra Energy (SE), Cheniere Energy (LNG), Plains Group Holdings LP (PAGP), Anadarko Petroleum (APC), Halliburton (HAL), and TransCanada (TRP)—among others.

Devon Energy produces oil, natural gas, and NGLs (natural gas liquids) through its portfolio of oil and gas properties in North America. Through acquisitions, the company has been able to double its oil production in North America over the last five-year period to ~200,000 bpd (barrels per day).

At the end of fiscal year 2014, the company produced 1.6 Bcf (billion cubic feet) of natural gas and 130,000 barrels of NGLs on a daily basis. As shown in the above chart, Devon Energy’s US assets were centered in the Anadarko Basin, Barnette Shale, Eagle Ford, Mississippian-Woodford, Premian Basin, and Rockies. The company’s only property outside of the US was in Alberta, Canada, where it ran two mainly oil facilities—Jackfish and Pike.

In fiscal year 2014, Devon Energy engaged in a couple of acquisitions to enhance its oil and gas assets portfolio and to create shareholder value. The first acquisition was related to the purchase of oil and gas properties and leasehold mineral interests from GeoSouthern Energy in the Eagle Ford area. The deal was valued at $6 billion. The total acreage acquired was ~82,000 net acres. The acquisition was expected to result in a production increase of 70,000–80,000 boepd (barrels of oil equivalent per day_.

In March 2014, the company decided to merge its midstream assets with Crosstex Energy and Crosstex Energy LP. The transaction resulted in the creation of two publicly traded entities:

1. EnLink Midstream, LLC (ENLC) – general partner
2. EnLink Midstream Partners, LP (ENLK) – limited partner

As part of the deal, Crosstex shareholders received equal ownership in the general partner and an upfront cash payment of $100 million or $2.05 per share. The rationale behind the deal was increased scale of operations, diversification benefits, and a more liquids-oriented profile.

During the year, the company also divested assets, predominantly non-core in nature, worth $5 billion. It used the proceeds to fund its Eagle Ford acquisition.

Stronger production levels resulted in operating revenue nearly doubling YoY (year-over-year) to $5.9 billion in 4Q14. However, the company booked a net loss of $408 million—compared to a net profit of $207 million—due to asset write-downs of ~$1.9 billion during the quarter. Looking ahead, the company expects to grow its oil production by 20%–25% in fiscal year 2015, on a retained assets basis, despite a 20% cut in its capital budget.

Devon Energy accounts for 4.35% of the iShares US Oil & Gas Exploration & Production ETF (IEO) and 1.68% of the Energy Select Sector SPDR Fund (XLE).

In the next part of this series, we’ll look at Magnetar’s new position in Applied Materials (AMAT).

Continue to Part 3

Browse this series on Market Realist:

• Part 1 - Magnetar Capital Initiated New Positions in 4Q14
• Part 3 - Magnetar Adds New Stake in Applied Materials
• Part 4 - Magnetar Purchases New Stake in Restaurant Brands International