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UPDATE: Devon inks C$3.8B deal to shed Canadian business

In the first step of its plan to transition into a U.S. oil growth business, Devon Energy Corp. is divesting its Canadian business to Canadian Natural Resources Ltd. for C$3.8 billion, or US$2.8 billion.

Devon's Canadian portfolio is composed of heavy oil assets principally located in Alberta, with an average net production of 113,000 oil-equivalent barrels per day in the first quarter of 2019 and proved reserves of about 409 million barrels of oil at year-end 2018. The assets are also located within Canadian Natural's core areas, according to a May 29 news release.

The deal represents Devon's "clean and timely exit from Canada" so the company can work exclusively on its U.S. portfolio and its strategic shift to an oil growth business, Devon President, CEO and Director Dave Hager said in a separate release from the company. As part of this strategy, Devon is pursuing a divestiture for its Barnett Shale gas assets in north Texas, which is expected for completion by the end of the year.

Devon announced its plan to divest its Canadian and Barnett Shale assets in February. The sales are anticipated to help Devon maintain its target debt levels of 1.0x to 1.5x EBITDA and continue its expanded share repurchase program. The company said it intends to implement sustainable annual cost reductions of at least $780 million, through more sales and operational improvements, by 2021.

The deal is scheduled to close by the end of the second quarter, with an effective date of Jan. 1. Devon plans to use the proceeds from the sale to reduce debt.

To fund the deal, Canadian Natural entered into a C$3.25 billion committed term facility, to be made available at deal closing. TD Securities served as sole underwriter and bookrunner on the term facility, and as financial adviser to Canadian Natural on the deal.

Devon hired J.P. Morgan Securities LLC as lead financial adviser. It also tapped Goldman Sachs as financial adviser.