Devon Energy Corporation (DVN) for the third quarter of 2010 clocked adjusted EPS of $1.44, which was above the Zacks Consensus Estimate of $1.29 and year-ago quarterly EPS of $1.10. On a reported basis however the company reported an EPS of $4.79 versus $1.12 in the year-ago quarter. However reported quarter numbers include a one-time gain of $1.44 per share from its sale of assets in Azerbaijan.
Operating Results
Quarterly revenues of $2.4 billion barely exceeded the Zacks Consensus Estimate of $2.3 billion, while it rose 27.3% from prior year revenues. The strong year-over-year performance in the quarter was aided by higher realized natural gas and liquids prices. Revenue from oil, natural gas and NGL in the quarter totaled $1.9 billion, up 25.8%. Devon’s average third-quarter realized price per Boe, including the impact of hedges, increased 23% over the year-ago period to $33.96 per barrel. Marketing and midstream revenues increased 34% to $461 million due to higher throughput and higher natural gas and natural gas liquids prices.
Average oil and gas production in the quarter decreased 2.9% to 56.4 million Boe (i.e. 613 thousand Boe per day). The decrease in production was mainly attributed to divestment of its Gulf of Mexico properties in the second quarter of 2010. In the quarter, daily production volumes of oil, natural gas and NGL averaged 103.5 thousand barrels (down 5.5%), 2.5 billion cubic feet (down 4.2%) and 89.2 thousand barrels (up 8.4%), respectively.
Devon’s average realized price including cash settlements for oil, natural gas and NGL averaged $62.31 per barrel (up 5%), $4.67 per thousand cubic feet (up 39%) and $29.01 per barrel (up 13%), respectively, in the second quarter.
Devon’s cost reduction measures during the quarter paid off well, as lease operating expenses declined $1 million year over year to $415 million. This was due to the divestiture of higher cost Gulf of Mexico properties which more than offset the effects of rising oilfield service and supply costs. Similarly Devon’s depreciation, depletion, and amortization expense (DD&A) of oil and gas properties declined 6% year over year to $397 million. Unit DD&A expense declined 4% to $7.04 per Boe in the third quarter of 2010. Overall Devon reported net earnings of $2.1 billion compared with net earnings of $499 million in the year-ago period. However reported quarterly earnings were inflated by a $1.5 billion gain on the sale of assets in Azerbaijan.
Financial Health
Devonmaintains a healthy financial and liquidity position. Devon’s operating cash flow in the quarter totaled to $1.3 billion compared to $1.2 billion at the end of the year-ago period. At September 30, 2010, the company’s cash balances stood at $4 billion, and its net debt to adjusted capitalization ratio was 8%.
The company currently has a short-term Zacks #4 Rank, which translates into a Sell recommendation on the stock.
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