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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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