Devon Energy in Restructuring Mode

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Devon Energy Corporation (DVN) has announced its intension to merge its U.S. personnel into a single operations group. Per the plan, the company will close its office in Houston and relocate operational tasks as well as quite a few numbers of employees from South Texas, East Texas and Louisiana to its corporate headquarters in Oklahoma City. Devon Energy expects the entire integration process to be completed by the first quarter of 2013.

The consolidation process will benefit Devon Energy in both ways -- financially as well as operationally. Initially, the company is expected to spend about $125 million in fourth-quarter 2012 and the first half of 2013 for this restructuring purpose. In the long run, the company will be saving $80 million per year due to reduction in general and administrative expenses, and lower personnel costs.

The company will benefit from economies of scale. As far as operational benefits are concerned, when all segments of Devon Energy will work under one roof, then automatically the overall operational efficiency will improve, which in turn, will enhance employee synergy and best practices.

From the last couple of quarters, we have observed that Devon Energy has been changing its capital investment strategy. Currently, the company has deployed a considerable portion of its capital expenditure budget to low-risk development projects in its vast North American assets.

Per the last few quarters’ financial numbers, it is evident that the company’s capital expenditure, long-term debt and lease operating expenses continue to follow upward trend. In the present scenario, we believe this cost-curtailment initiative will enable Devon Energy to minimize its cost burden and the company can comfortably save substantial amount of money in the near future.

Oklahoma City-based Devon Energy Corporation is an independent energy company. The company engages primarily in exploration, development and production of oil and natural gas. The company competes with EOG Resources, Inc. (EOG) and Chesapeake Energy Corporation (CHK). Devon Energy Corporation currently retains a short-term Zacks #3 Rank (Hold Rating). With a market capitalization of $24.91 billion, the company has 5,200 full time employees.

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