Market Overview

Devon Energy Reports Third-Quarter 2018 Results

Share:

Highlights

  • Delaware Basin and Eagle Ford drive U.S. production outperformance
  • Third-quarter upstream capital expenditures were 9 percent below
    guidance
  • Operating cash flow expands 61 percent year over year to $807 million
  • Free cash flow generation reaches $249 million in third quarter
  • Stock-repurchase program on pace to decrease share count by 20 percent

Devon Energy Corp. (NYSE:DVN) today reported operational and financial
results for the third quarter of 2018. Also included within the release
is the company's guidance outlook for the fourth quarter of 2018.

"Devon continued to execute at a high level on its U.S.-focused growth
initiatives," said Dave Hager, president and CEO. "Our third-quarter
performance was highlighted by improving well productivity and capital
efficiency that drove U.S. production above the high end of guidance
with a total capital investment well below forecast. Furthermore, our
unwavering commitment to capital discipline allowed us to comfortably
fund our drilling programs and generate free cash flow in the quarter.

"In addition to our strong operational and financial results, we also
made significant progress building per-share value through our
industry-leading $4 billion share-repurchase program," Hager said.
"Given the value proposition of our current share price, we
opportunistically accelerated the buyback of our shares and are on track
to repurchase approximately 20 percent of the company's outstanding
shares by the time we complete the program in the first quarter of 2019."

Delaware Basin and Eagle Ford Drive U.S. Production Outperformance

Devon's total companywide production averaged 522,000 oil-equivalent
barrels (Boe) per day in the third quarter. With the company's capital
programs focused on expanding higher-margin production, oil and natural
gas liquids (NGLs) volumes increased to 67 percent of the product mix.

Third-quarter production was highlighted by results from Devon's U.S.
resource plays, which are attaining the highest returns in the company's
portfolio. U.S. production averaged 418,000 Boe per day in the quarter,
exceeding the company's third-quarter guidance range, adjusted for asset
sales, of 398,000 to 417,000 Boe per day.

Within Devon's diversified U.S. portfolio, the strongest asset-level
performance was achieved by the company's Delaware Basin operations in
southeast New Mexico. Oil production from this world-class asset
increased 45 percent year over year, driving volumes in the Delaware to
79,000 Boe per day. A key driver of growth was seven prolific Wolfcamp
wells around the state-line area that averaged initial 30-day rates of
4,000 Boe per day per well.

Devon's Eagle Ford assets in south Texas also delivered strong results,
with production advancing 12 percent compared to the second quarter of
2018. The growth was driven by 20 high-rate wells brought online during
the quarter that averaged initial 30-day rates of approximately 3,000
Boe per day per well.

With the strong well productivity Devon has achieved year to date in the
U.S., light-oil production growth from retained assets is on track to
advance 17 percent in 2018. This growth rate is trending at
approximately 200 basis points above the company's original budget
expectations, adjusted for asset sales.

For additional details on Devon's E&P operations and preliminary 2019
outlook, please refer to the company's third-quarter 2018 operations
report at www.devonenergy.com.

Capital Spending Below Q3 Guidance; No Change to 2018 Outlook

In addition to the strong U.S. production performance, the company
maintained discipline with its capital program. Devon's upstream capital
spending was $523 million in the third quarter, which was $52 million,
or 9 percent below the company's midpoint guidance.

For the full year, Devon has made no modifications to its capital
outlook and expects its upstream capital spending to be approximately
$2.4 billion in 2018.

Premium Gulf Coast Pricing Drives Upstream Revenue Higher

Devon's upstream revenue, excluding commodity derivatives, totaled $1.6
billion in the third quarter, a 29 percent improvement compared to the
year-ago quarter. Contributing factors to revenue growth were higher
commodity price realizations and growth in higher-margin, liquids
production.

Revenue associated with NGLs production delivered the highest growth,
advancing 134 percent year over year. The company's NGLs volumes are
benefitting from direct access to premium Mont Belvieu pricing through
fixed, low-cost transportation and fractionation agreements.

Also contributing to higher revenues were firm transport and marketing
agreements that provide the majority of Devon's U.S. oil production
direct access to advantaged Gulf Coast pricing. Combined with price
protection provided by regional basis swaps, oil realizations in the
U.S. averaged approximately 97 percent of the West Texas Intermediate
(WTI) benchmark.

The company's heavy-oil business in Canada continues to benefit from
Western Canadian Select (WCS) basis swaps on approximately 50 percent of
its estimated oil production in 2018. These attractive WCS basis swaps
are locked in at $15 off WTI pricing and have generated cash settlements
of $193 million year to date.

Operating Costs Improve and Field-Level Margins Expand

Devon's largest field-level cost, lease operating expense and
transportation, totaled $453 million, or $9.45 per Boe in the third
quarter. This represents a $40 million improvement compared to the
previous quarter and was 2 percent below guidance. The field-level cost
savings were achieved in both the U.S. and Canada.

The improving operating costs coupled with the benefits of improved
price realizations and higher-margin liquids production resulted in
margin expansion for Devon. Field-level cash margin reached $22 per Boe
in the third quarter, a 34 percent increase compared to the year-ago
period. Field-level cash margin is computed as upstream revenues,
excluding commodity derivatives, less production expenses with the
result divided by oil-equivalent production volumes.

Corporate Cost Savings Initiatives Enhancing Profitability

Further enhancing Devon's profitability is its improving general and
administrative (G&A) cost structure. G&A expenses totaled $147 million
in the third quarter, which was below the low end of guidance and
represents a 13 percent improvement compared to the third quarter of
2017. The lower overhead costs were driven by reduced personnel expenses.

With the retirement of $828 million of debt year to date, the company
expects to reduce net financing costs by $66 million on an annual basis.
With reduced debt balances, Devon's net borrowing costs (net financing
costs plus capitalized interest) improved 17 percent year over year to
$81 million.

The aforementioned cost savings, combined with the financial benefits
related to the sale of EnLink Midstream, position Devon's go-forward G&A
and interest expense to improve by approximately $475 million annually.

Earnings Exceeds Wall Street Consensus

The company reported net earnings attributable to Devon of $2.5 billion
or $5.14 per diluted share in the third quarter. Adjusting for items
securities analysts typically exclude from their published estimates,
the company's core earnings totaled $324 million or $0.65 per diluted
share, exceeding the consensus estimates of analysts.

With the closing of the EnLink transaction, EnLink's financial results
are no longer consolidated with Devon's upstream business, and
historical results related to EnLink are presented as discontinued
operations in the company's consolidated financial statements.

Operating Cash Flow Increases 61 Percent; Free Cash Flow Reaches $249
Million

Devon's operating cash flow from continuing operations totaled $807
million in the third quarter, a 61 percent increase compared to the same
period a year ago. This level of operating cash flow fully funded the
company's total capital investments and generated $249 million of free
cash flow in the quarter.

The company also generated additional cash inflows through its ongoing
divestiture activity. With the closing of the EnLink transaction in
July, asset sale proceeds exceeded $3 billion in the third quarter. To
date, total proceeds from Devon's divestiture program have now reached
$4.7 billion, and the company expects to achieve its $5 billion
divestiture target around year-end.

Industry-Leading $4 Billion Share-Repurchase Program Advances

The company's $4 billion share-repurchase authorization represents the
largest in the upstream industry when measured as a percentage of market
capitalization. To date, Devon has repurchased 67 million shares, or
nearly 13 percent of outstanding shares, at a total cost of
approximately $2.7 billion. The company expects to complete its $4
billion share-repurchase program during the first quarter of 2019.

Devon exited the third quarter with $3.1 billion of cash on hand and an
undrawn credit facility of $3 billion. Devon has a debt balance of $6.0
billion and no significant debt maturities until mid-2021. Overall,
Devon's financial position remains exceptionally strong, with
investment-grade credit ratings and excellent liquidity.

Conference Call Webcast and Supplemental Earnings Materials

Also provided with today's release is the company's detailed operations
report that is available on the company's website at www.devonenergy.com.
The company's third-quarter conference call will be held at 10 a.m.
Central (11 a.m. Eastern) on Wednesday, Nov. 7, 2018, and will serve
primarily as a forum for analyst and investor questions and answers.

Non-GAAP Disclosures

This release may include non-GAAP (generally accepted accounting
principles) financial measures. Such non-GAAP measures are not
alternatives to GAAP measures, and you should not consider these
non-GAAP measures in isolation or as a substitute for analysis of our
results as reported under GAAP. Reconciliations of these non-GAAP
measures and other disclosures are provided below in this release.

Forward-Looking Statements

This release includes "forward-looking statements" as defined by the
Securities and Exchange Commission (SEC). Such statements include those
concerning strategic plans, expectations and objectives for future
operations, and are often identified by use of the words "expects,"
"believes," "will," "would," "could," "forecasts," "projections,"
"estimates," "plans," "expectations," "targets," "opportunities,"
"potential," "anticipates," "outlook" and other similar terminology. All
statements, other than statements of historical facts, included in this
press release that address activities, events or developments that the
company expects, believes or anticipates will or may occur in the future
are forward-looking statements. Such statements are subject to a number
of assumptions, risks and uncertainties, many of which are beyond the
control of the company. Statements regarding our business and operations
are subject to all of the risks and uncertainties normally incident to
the exploration for and development and production of oil and gas. These
risks include, but are not limited to: the volatility of oil, gas and
NGL prices; uncertainties inherent in estimating oil, gas and NGL
reserves; the extent to which we are successful in acquiring and
discovering additional reserves; the uncertainties, costs and risks
involved in oil and gas operations; regulatory restrictions, compliance
costs and other risks relating to governmental regulation, including
with respect to environmental matters; risks related to our hedging
activities; counterparty credit risks; risks relating to our
indebtedness; cyberattack risks; our limited control over third parties
who operate our oil and gas properties; midstream capacity constraints
and potential interruptions in production; the extent to which insurance
covers any losses we may experience; competition for leases, materials,
people and capital; our ability to successfully complete mergers,
acquisitions and divestitures; and any of the other risks and
uncertainties identified in our Form 10-K and our other filings with the
SEC. Investors are cautioned that any such statements are not guarantees
of future performance and that actual results or developments may differ
materially from those projected in the forward-looking statements. The
forward-looking statements in this release are made as of the date of
this release, even if subsequently made available by Devon on its
website or otherwise. Devon does not undertake any obligation to update
the forward-looking statements as a result of new information, future
events or otherwise. The SEC permits oil and gas companies, in their
filings with the SEC, to disclose only proved, probable and possible
reserves that meet the SEC's definitions for such terms, and price and
cost sensitivities for such reserves, and prohibits disclosure of
resources that do not constitute such reserves. This release may contain
certain terms, such as resource potential, potential locations, risked
and unrisked locations, estimated ultimate recovery (or EUR),
exploration target size and other similar terms. These estimates are by
their nature more speculative than estimates of proved, probable and
possible reserves and accordingly are subject to substantially greater
risk of being actually realized.
The SEC guidelines strictly
prohibit us from including these estimates in filings with the SEC.
Investors are urged to consider closely the disclosure in our Form 10-K,
available at
www.devonenergy.com.
You can also obtain this form from the SEC by calling 1-800-SEC-0330 or
from the SEC's website at
www.sec.gov.

About Devon Energy

Devon Energy is a leading independent energy company engaged in finding
and producing oil and natural gas. Based in Oklahoma City and included
in the S&P 500, Devon operates in several of the most prolific oil and
natural gas plays in the U.S. and Canada with an emphasis on achieving
strong returns and capital-efficient cash-flow growth. For more
information, please visit www.devonenergy.com.

                 
 
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
PRODUCTION NET OF ROYALTIES
Quarter Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Oil and bitumen (MBbls/d)
U. S. 125 101 121 106
Heavy Oil
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com