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Shale play Devon Energy reported better than expected third quarter earnings after the market with Oil production rising by 19% to 148,000 barrels per day. $DVN stock rallied 4% in after hours on the news.


Devon

Devon reports with other key Shale names with footprints in the main shale basins the Permian, Marcellus and Utica.

Devon Energy Corp NYSE: DVN Reported Earnings After Close Tuesday

$0.26 Beat $0.16 EPS BUT $1.85Bil Beat $1.72 Billion Revenue Forecast

Earnings

Devon Energy Corp (NYSE: DVN) reported third-quarter earnings Tuesday with core earnings of $0.26 per share versus $0.16 per share expected. Total revenue fell by 14% to $1.85 billion versus $1.72 billion expected.

Note Devon Energy reported net earnings of $109 million, or $0.27 per diluted share. Core earnings were $103 million, or $0.26 per diluted share.

Devon Energy Corp NYSE: DVN

Market Reaction : After Hours $24.00 +$1.02 (+4.44%)

Highlights

“The third quarter featured exceptional execution across all aspects of our strategic plan reflecting our unwavering commitment to deliver attractive financial returns, improve capital efficiency and growshareholder distributions,” said Dave Hager, president and CEO. “Furthermore, our advantaged multi-basin portfolio is built to last, with significant capital allocation flexibility designed to deliver both high-return oil growth and increasing amounts of free cash flow in an environmentally responsible manner.”

  • Total net production from retained assets averaged 325,000 oil-equivalent barrels (Boe) per day
  • Oil production jumped by 19% to 148,000 barrels per day. This exceeded midpoint guidance by 3% or 4,000 barrels per day due to strong wells productivity and timing of completions in the Delaware Basin.
  • The realized price, including commodity hedges, was $27.73 per Boe, compared to the prior quarter of $27.84 per Boe. This reflects lower crude, natural gas, and natural gas liquids pricing.
  • Operating cash flow totaled $597 million, a 22 percent increase compared to the second quarter
  • Free cash flow generation reached $56 million in third quarter
  • $100 million midstream transaction executed in Delaware Basin
  • Share-repurchase program decreased outstanding share count by 28 percent since 2018
  • Third-quarter oil production increased 19 percent year-over-year, exceeding guidance•Raised full-year 2019 oil production guidance for 3rd time this year
  • Capital efficiency improved with no change to 2019 capital spending plan“The third quarter featured exceptional execution across all aspects of our strategic plan

Asset-Level Overview

Delaware Basin: Net production from the company’s operations averaged 127,000 Boe per day, a 59 percent increase compared to the third-quarter 2018. This low-cost production growth across the basindrove a 12 percent year-over-year improvement in production costs to $9.06 per Boe. The most significant contributor of volume growth in the quarter was new well activity in the Leonard Shale. Devon brought online 15 Leonard wells in the quarter with average 30-day production rates of 2,200 Boe per day (71 percent oil), at an average completed well cost of $7.5 million.

Powder River Basin: Net production averaged 25,000 Boe per day in the quarter (71 percent oil). This represents a 33 percent increase in production compared to the year-ago period. Third-quarter volumegrowth was driven by 18 new wells targeting the Parkman, Teapot, Turner and Niobrara formations. This activity was highlighted by a 3-well spacing test in the Niobrara Shale that averaged 30-day rates of 1,300 Boe per day per well (87 percent oil). To date, Devon has commenced production on 8 successful Niobrara appraisal wells across its 200,000 net acre position in the oil fairway of the play. The company plans to accelerate Niobrara appraisal activity in 2020

Eagle Ford: Third-quarter net production averaged 45,000 Boe per day. This high-margin production generated $313 million of free cash flow over the past year. Due to timing of completion activity, the company did not bring online any new wells in the third quarter. In the fourth quarter, Devon plans to bring online more than 25 Eagle Ford wells and expects production to average 50,000 to 55,000 Boe per day.

STACK: Third-quarter net production totaled 121,000 Boe per day, with liquids accounting for 56 percent of the volume mix. Devon brought online 16 operated wells during the quarter, with 30-day rates averaging 1,600 Boe per day. To date, these infill development projects, spaced at 4 to 6 wells per unit, are exceeding well productivity expectations and completed well costs have declined to as low as $6 million per well. The STACK asset is projected to generate $370 million of free cash flow in 2019.For more detailed results and commentary regarding Devon’s operations and outlook, please refe

Outlook

  • Looking ahead into the fourth quarter, the company expects oil production from retained assets to average 154,000 to 160,000 barrels per day, a 6% sequential quarter improvement at the midpoint. 
  • Upstream capital from retained assets are still anticipated to be $1.83 billion to $1.87 billion for the full year and is now expected to be $375 million to $420 million for the fourth quarter.

Completing Transformation to High-Return U.S. Oil Growth Company

Back in February Devon announced that its board of directors has authorized the company to pursue the separation of its Canadian and Barnett Shale assets to complete the transformation to a high-return U.S. oil growth business. The company will evaluate multiple methods of separating the assets, including a potential sale or spin-off. The separation will allow Devon to focus on its top-tier, high-return U.S. oil assets and is aligned with the company’s previously announced long-term strategic plan.

“With our world-class U.S. oil resource plays rapidly building momentum and achieving operating scale, the final step in our multi-year transformation is an aggressive, transformational move that will accelerate value creation for our shareholders by further simplifying our resource-rich asset portfolio,” said Hager. “New Devon will emerge with a highly focused U.S. oil 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.”

Share-Repurchase Program Increased to $5 Billion and Dividend Raised 13 Percent

Devon also announced back in Febrary that its board of directors authorized a $1 billion increase to the company’s previously announced $4 billion share-repurchase program, bringing the total repurchase program to $5 billion. The authorization for the repurchase program expires on Dec. 31, 2019. As of Feb. 18, 2019, Devon had completed $3.4 billion of repurchases under the program, totaling approximately 90 million shares.

All purchases will be made in accordance with applicable laws from time to time in open-market or private transactions, depending on market conditions, and may be discontinued at any time. At the current share price, this program covers nearly 30 percent of the company’s outstanding common stock.

Additionally, the company’s board of directors approved a 13 percent increase in its quarterly common stock dividend beginning in the second quarter of 2019. The new quarterly dividend rate will be $0.09 per share, compared to the prior quarterly dividend of $0.08 per share. The adjusted dividend is payable on June 28, 2019, to stockholders of record at the close of business on June 14, 2019.

 

Devon Divestures 

Devon Divesture Program

Devon announced they entered into a deal with Carrizo Oil & Gas to divest non-core Delaware Basin acreage for $215 million.

Devon has been aggressively divesting assets for a number of years. The deal includes 2.5 Mboe/d in production and 9,600 net acres in Ward and Reeves County, Texas. The deal is expected to close by the fourth quarter of 2018. Carrizo cited that the asset holds over 100 net potential de-risked locations across the Wolfcamp A and B, with upside from other zones.

CRZO cited a high degree of operational control with more than 90% of net acreage operated Minimal near-term drilling obligations as 94% of the acreage is held by production Low average royalty of approximately 20% Net production of approximately 2,500 Boe/d (60% oil)

More than 100 net potential de-risked drilling locations identified across the Wolfcamp A and B based on 7,000-ft. laterals, with significant upside potential from additional zones, further delineation, and future downspacing Includes salt-water disposal wells that can be integrated into the Company’s system Significant opportunities to generate efficiencies from increased scale, extension of lateral lengths, and integration of infrastructure, Read More

Last year Devon sold Eagle Ford Assets to Penn Virginia for $205 Million as part of its $1 billion divestiture plan, first announced in May, 2017.

Devon Energy Operations Devon Energy Operations

About Devon Energy

Devon Energy Corporation is a leading independent oil and natural gas exploration and production company. Devon's operations are focused onshore in the United States and Canada. Devon has more than doubled its onshore North American oil production since 2011. Today the company produces approximately 250,000 barrels a day and has a deep inventory of development opportunities to deliver future oil growth. Devon also produces about 1.3 billion cubic feet of natural gas a day and about 100,000 barrels of natural gas liquids per day.

Headquartered in Oklahoma City, Devon is a Fortune 500 company and is included in the S&P 500 Index. Its common shares trade on the New York Stock Exchange under the ticker symbol DVN.

Source: Devon  

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