Devon Energy $DVN Profit Falls Reflecting Divestures

Shale play Devon Energy $DVN reported third quarter earnings after the market close Tuesday down from Q2 after selling Eagle Ford assets. In Q2 Devon lowered CAPEX spending alomg with other key Shale names in the Permian, Marcellus and Utica.

Shale play Devon Energy $DVN reported third quarter earnings after the market close Tuesday down from Q2 after selling Eagle Ford assets.  Production exceeded midpoint of hurricane-adjusted guidance with U.S. oil production on track to increase ~20% in Q4. Capital spending was 12% below budget YTD  with Free cash flow increases cash balances to $2.8 billion.

Devon reported with other key Shale names with footprints in the main shale basins the Permian, Marcellus and Utica including Diamondback Energy $FANG and EOG Resources $EOG.

Earnings: Profit fell to $242 million, or $0.46 per share, down from $993 million, or $1.89 per share, in last year’s third quarter. Revenue fell 25.3% to $3.16 billion, down from $4.23 billion last year.

Reaction: Devon Energy Corp NYSE: DVN After-hours: 36.84 –0.06 (-0.16%)

Last quarter Devon sold Eagle Ford Assets to Penn Virginia for $205 Million as part of its $1 billion divestiture plan, first announced in May.

 Production Exceeds Midpoint of Hurricane-Adjusted Guidance

  • Net production averaged 527,000 Boe per day, exceeding the midpoint of the company’s Hurricane Harvey adjusted guidance by 6,000 Boe per day. 
  • Devon’s U.S. resource plays averaged 403,000 Boe per day in Q3 (51% liquids). Production was reduced by ~15,000 barrels per day in Q3 due to storm-related issues. 
  • In Canada, net production was at the top-end of guidance averaging 124,000 Boe per day during Q3.

Divestiture Proceeds Reach $420 Million 

  • In Q3, the company’s divestiture program continued to progress with an additional $80 million of sales, increasing proceeds to $420 million to date. 
  • Due to the closing of the Lavaca County assets and other minor transactions, Devon’s net production is expected to be reduced by ~5,000 Boe per day in Q4 (60% oil).

Free Cash Flow Increases Cash Balances to $2.8 Billion 

  • The company’s upstream operations generated free cash flow in Q3, helping increase Devon’s cash balances by $400 million to $2.8 billion at the end of September.
  • This is the 3rd straight quarter that the company has increased its cash balance, representing a total cash build of ~$800 million year-todate. 
  • In addition to strong liquidity, Devon possesses investment-grade credit ratings and has no significant debt maturities until mid-2021.

Guidance

  • With operations fully restored from storm-related impacts, Devon remains on track to achieve both its full-year 2017 and Q4 exit-rate growth targets for U.S. oil production. 
  • The key drivers of growth in the U.S. are the company’s STACK and Delaware Basin assets. Combined, these two franchise assets are expected to increase their production by >30% by the end of 2017 compared to Q4 2016. 
  • Devon’s heavy oil operations will also contribute growth in Q4. With maintenance activity complete, net production in Canada is expected to increase to ~140,000 Boe per day. 
  • Overall, top-line production from retained assets(1) is projected to range from 551,000 to 571,000 Boe per day in Q4. Based on the midpoint this represents a ~7% increase from Q3.

Source: Devon http://s2.q4cdn.com/462548525/files/doc_financials/quarterly/2017/Q3/Q3-2017-DVN-Operations-Report-FINAL.pdf

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