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Devon Energy Q2 Earnings Meet Expectations, Revenues Beat

Zacks Equity Research

Devon Energy Corp. (DVN) reported second-quarter 2014 adjusted earnings per share of $1.40, in line with the Zacks Consensus Estimate but ahead of the year-ago number by 16%.

Devon Energy Corporation - Earnings Surprise | FindTheBest

On a GAAP basis, the company reported earnings of $1.64 per share versus $1.68 per share in the year-ago quarter. The difference between the operating and GAAP number in the reported quarter was due to restructuring cost and fair value changes in financial instruments of 45 cents and a one-time gain of 69 cents from asset sales and related repatriation.


Devon’s quarterly revenues of $4,510 million surpassed year-ago revenues of $3,088 million by 46% and the Zacks Consensus Estimate of $3,793 million by 18.9%.

The upside was due to a whopping 346% year-over-year increase in marketing and midstream revenues to $2,230 million.

Highlights of the Release

Devon’s total production of oil, natural gas and natural gas liquids averaged 667,000 oil-equivalent barrels (Boe) per day in the second quarter of 2014. Excluding assets earmarked for divestiture, total production in the second quarter averaged 620,000 Boe per day, up 14% year over year.

The increase in oil production from the Permian Basin and Eagle Ford assets helped boost overall production. Devon’s domestic oil production increased 79% year over year, which is the primary reason behind the surge in total production.

In the reported quarter, Devon’s marketing and midstream operating profit was $224 million, which exceeded the company’s guidance and represented a 90% year-over-year increase.

Total operating expenses in second-quarter 2014 increased 37.6% to $2,736 million from $1,988 million in second-quarter 2013.

Realized Prices

Realized oil prices in the quarter were $81.83 per barrel, up 6% from $77.17 per barrel in the year-ago quarter. Realized prices for natural gas liquids were down 4.8% to $25.13 per barrel from $26.39 per barrel in the year-ago quarter.

Natural gas price realization was up 17% year over year to $3.99 per thousand cubic feet (Mcf) from $3.41 per Mcf in the year-ago quarter.

On the whole, total realized prices in the second quarter were $42.34 per boe, up 20.2% year over year.

Financial Health

As of Jun 30, 2014, the company’s cash balance totaled $1.70 billion versus $6.06 billion as of Dec 31, 2013.

Long-term debt as of Jun 30, 2014, was $11.88 billion versus $7.96 billion as of Dec 31, 2013.

Capital expenditure in second-quarter 2014 was nearly $1.93 billion. Devon generated cash flow from operations of $2.0 billion in the second quarter, a 47% increase compared to the second quarter of 2013.

Other Company Releases

EOG Resources Inc. (EOG) posted net earnings of $1.45 per share in second-quarter 2014, surpassing the Zacks Consensus Estimate of $1.36 by 6.6%.

Pioneer Natural Resources Co. (PXD) posted earnings of $1.36 per share in second-quarter 2014, surpassing the Zacks Consensus Estimate by 7.1%.

Encana Corporation (ECA) announced operating earnings per share of 23 cents, which failed to beat the Zacks Consensus Estimate of 28 cents.

Our View

Devon’s strategy to divest non-core assets in the U.S. and Canada and focus on the reserve rich onshore U.S. assets is yielding results. The retained North American assets of the company have contributed to its strong second-quarter performance.

The sales proceeds, cash in hand and free cash flow have helped the company to reduce its debt level by $3.2 billion in the reported quarter. The company plans to cut outstanding debts further in the third quarter. This will strengthen its financial position and lower the interest burden going forward.

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

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