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Devon Energy Beats on Q2 Earnings; Cuts Capital Cost View - Analyst Blog

Zacks Equity Research

Devon Energy Corp. DVN reported second-quarter 2015 adjusted earnings per share of 78 cents, 62.5% higher than the Zacks Consensus Estimate of 48 cents. Earnings in the reported quarter were much lower than $1.40 in the year-ago quarter.

 

Devon Energy Corporation - Earnings Surprise | FindTheBest

On a GAAP basis, the company reported a loss of $6.94 per share as compared to earnings of $1.64 per share in the year-ago quarter. The difference between the operating and GAAP figures in the reported quarter was due to the change in value of financial instruments and foreign currency as well as asset impairments.

Revenues

Devon’s quarterly revenues of $3,393 million lagged year-ago revenues of $4,510 million by 24.8% and the Zacks Consensus Estimate of $3,750 million by 9.5%.

Highlights of the Release

In the second quarter 2015, Devon’s total production averaged 674,000 barrels of oil-equivalent (Boe) per day, within the guidance range of 660,000–688,000 boe per day. Total production was up 1% year over year; excluding the divested asset it was up nearly 9%.

Total production was primarily driven by a 30% year-over-year increase in oil production from the U.S. Robust output from Devon’s Eagle Ford and Delaware Basin assets was particularly notable.

At the field level, the company is effectively controlling its costs. Field level operating costs, which include both lease operating expenses and production taxes, declined 8% year over year to $11.05 per Boe.

Total operating expenses however escalated 188.5% to $7.76 billion from $2.74 billion a year ago. Excluding asset impairment of $4.16 billion in the reported quarter, operating expenses were up 31.1% year over year. The increase was due to higher general and administrative expenses.

Realized Prices

Realized oil prices in the quarter were $62.77 per barrel, down 23.3% from $81.83 per barrel in the year-ago quarter. Realized prices for natural gas liquids were down 59.7% to $10.31 per barrel from $25.13 per barrel in the year-ago quarter.

Natural gas price realization was down 32.1% year over year to $2.71 per thousand cubic feet (Mcf) from $3.99 per Mcf in the year-ago quarter.

Total realized prices in the second quarter, including cash settlements, were $33.69 per boe, down 20.4% year over year, due to lower prices of all commodities sold by the company.

Financial Health

As of Jun 30, 2015, the company’s cash balance totaled $1,725 million, down from $1,480 million as of Dec 31, 2014.

Long-term debt as of Jun 30, 2015, was $11,375 million compared with $9,830 million as of Dec 31, 2014.

Devon’s cash flow from operating activities in second-quarter 2015 was $1,101 million compared with $2,049 million in second-quarter 2014.

Capital expenditure was $1,432 million, lower than $1,758 million in second-quarter 2014.

Guidance

Devon Energy estimates total production for the third quarter of 2015 in the range of 638,000–676,000 boe per day. The company maintained its 2015 total production guidance of 649,000–684,000 boe per day.

Capital expenditure in the third quarter is expected in the range of $1,025–$1,165 million. The company lowered its 2015 guidance to $4,410–-$4,810 million from the prior level of $4,510–-$4,910 million.

Other Company Releases

Anadarko Petroleum Corporation APC reported second-quarter 2015 adjusted earnings of 1 cent per share. The Zacks Consensus Estimate was at a loss of 54 cents.

TOTAL S.A. TOT reported second-quarter 2015 operating earnings of $1.34 per share (€1.21 per share), surpassing the Zacks Consensus Estimate by 20.7%.

Murphy Oil Corporation MUR reported a second-quarter 2015 loss of 48 cents per share, narrower than the Zacks Consensus Estimate of a loss of 54 cents.

Our View

Devon has completed the divestiture of non-core assets. Its focus on high-quality North American properties has led to increased oil output in four consecutive quarters. We expect ongoing strong production from the Eagle Ford and Permian Basin assets will help it to achieve the growth target of 25–35% year over year.

However, commodity prices continue to remain soft compared with prior levels. Devon is doing its part to cut down on expenses, without sacrificing on production volumes. However, weak prices will deter it to realize the full value of its strong production growth.

Devon Energy currently has a Zacks Rank #3 (Hold).

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