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Earnings Buzz: Devon Energy Corporation (NYSE: DVN)


On Thursday, Shares of Devon Energy Corporation (NYSE: DVN) lost -0.19% to $41.85. The stock opened its trade at $41.57 and after floating in a price range of $41.33 to $42.31; the stock grabbed the investor’s attention and traded 939,770 shares as compared to its average daily volume of 8.03M shares. The stock’s institutional ownership stands at 85.60%.

Devon Energy Corp. (DVN) recently stated operational and financial results for the first quarter of 2018.

Operating Cash Flow Increases 11 Percent:

In the first quarter of 2018, Devon’s operating cash flow totaled $804.0M, an 11 percent increase from the fourth quarter of 2017. Devon stated a net loss totaling $197.0M, or $0.38 per diluted share, in the first quarter. The quarterly loss was attributable to a $312.0M charge related to the early retirement of debt. Adjusting for this one-time charge and other items securities analysts typically exclude from their published estimates, the company’s core earnings were $108.0M, or $0.20 per diluted share, in the quarter.

Upstream Revenue in U.S. Advances and EnLink Profitability Expands:

The company’s upstream revenue in the U.S. totaled $1.00B in the first quarter, a 36 percent improvement contrast to the fourth quarter of 2017. Contributing factors to the strong revenue growth were higher commodity price realizations and growth in higher-margin, light-oil production.

In Canada, upstream revenues totaled $302.0M in the first quarter. The company benefitted from Western Canadian Select (WCS) basis swaps on about 50 percent of its estimated Canadian oil production in the first quarter, generating cash settlements of $97.0M.

Devon’s midstream business generated operating profits of $277.0M in the first quarter, increasing 42 percent year over year. This growth was driven by the company’s investment in EnLink Midstream. Devon has a 64 percent ownership interest in EnLink’s general partner (ENLC) and a 23 percent interest in the limited partner (ENLK). In aggregate, the company’s ownership in EnLink has a market value of about $3.0B and is projected to generate cash distributions of $270.0M in 2018.

Per-Unit Production Expense to Improve Throughout 2018:

Devon’s production expense totaled $543.0M, or $11.08 per Boe, in the first quarter, in line with guidance. New revenue recognition accounting rules were implemented in the first quarter, resulting in a $62.0M increase to production expense. The new accounting rules changed the way certain processing fees are presented for natural gas and natural gas liquids. These fees were historically presented as reductions to revenue but are now recorded to production expense. This change had no impact on earnings or cash flow.

With growth in high-margin and low-cost production in the Delaware and STACK, per-unit production expense is projected to decline 5 to 10 percent by year-end 2018.

G&A and Interest Savings to Reach $175.0M Annually:

The company’s general and administrative expenses (G&A) totaled $226.0M in the first quarter. Subsequent to quarter-end, with workforce and non-personnel related cost reduction programs ongoing, the company anticipates G&A expense to decline by 15 percent in the second quarter. On an annualized run-rate basis, the company anticipates G&A savings of about $110.0M.

Net financing costs totaled $431.0M in the first quarter. Excluding the $312.0M charge attributable to the early retirement of debt, net financing costs for the first quarter were $119.0M. With the retirement of high-coupon debt in the first quarter, the company anticipates to reduce net financing costs by about $64.0M on an annual basis.

In aggregate, these G&A and interest-reduction programs position Devon to lower its costs by about $175.0M annually.

Share Repurchase Program Reaches $204.0M; Dividend Increased 33 Percent:

In the first quarter, Devon declared that its board of directors authorized a $1.00B share-repurchase program of the company’s common stock. As of the end of April, Devon had repurchased 6.20M shares under the program at a total cost of $204.0M, with an average share purchase price of $33. Devon anticipates completing the stock repurchase program by the end of 2018.

DVN has a market value of $22.55B while its EPS was booked as $0.39 in the last 12 months. The stock has 537.72M shares outstanding. In the profitability analysis, the company has gross profit margin of 85.50% while net profit margin was 0.90%. Beta value of the company was 2.22; beta is used to measure riskiness of the security. Analyst recommendation for this stock stands at 2.00.

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