Devon Energy Corp. (DVN) posted better-than-expected results for the first quarter of 2010 due to higher realized commodity prices and lower costs across major categories. The company’s adjusted EPS for the quarter was $1.85, which was above the Zacks Consensus Estimate of $1.46.
Average oil and gas production in the quarter declined 4.6% to 55.8 million BOE (i.e. 620.4 thousand BOE per day). In the quarter, daily production volumes of oil, natural gas and NGL averaged 116.7 thousand barrels (up 1%), 2.5 billion cubic feet (down 7%) and 84.2 thousand barrels (up 3%), respectively.
Revenues improved 69% to $3.2 billion in the quarter due to robust performance at all its segments. Revenue from oil, natural gas and NGL in the quarter totaled $2.1 billion, up 50%, driven by higher realized oil, natural gas, and natural gas liquids (NGL) pricing. Marketing and midstream revenues increased 43% to $530 million in the quarter.
Devon’s average realized price, excluding the impact of hedges, for oil, natural gas and NGL averaged $67.58 per barrel (up 115%), $4.80 per thousand cubic feet (up 29%) and $36.09 per barrel (up 94%), respectively, in the first quarter.
Devon’s cost reduction measures during the quarter resulted in reduced expenses in most categories. In the first quarter, lease operating expense, DD&A expense and G&A expense declined 6%, 24% and 16%, respectively, to $414 million, $426 million and $138 million. Operational efficiencies realized through restructuring led to lower G&A expenses for the quarter.
Partially offsetting these were taxes other than income taxes, which increased 13% to $101 million in the quarter. This increase was driven by higher production taxes resulting from higher oil and gas revenues.
In 2009, Devon announced plans to divest its Gulf of Mexico and international properties. To date, the company has entered into sale agreements worth about $9.9 billion, before tax. During the first quarter, Devon closed the sale of three lower tertiary discoveries in the deepwater Gulf of Mexico for $1.3 billion.
Devon has now essentially completed its exit from deepwater Gulf of Mexico. The company expects to close the remaining asset sales throughout 2010 and finalize the entire restructuring process by year-end. Devon now estimates the total pre-tax proceeds from the divestitures to exceed $10 billion, with after-tax proceeds approximating $8 billion.
Devon maintains a healthy financial and liquidity position. Devon’s cash flow before balance sheet changes increased 45% to $1.4 billion in the quarter. During the quarter, Devon used the $1.3 billion sale proceeds to fully fund its capital expenditure and repay $1.2 billion of commercial paper borrowings. Devon exited the quarter with $1.2 billion of cash on hand and $6.1 billion of net debt. At quarter-end, Devon’s net debt to adjusted capitalization was 22%.
Devon also announced that its board of directors has authorized the repurchase of up to $3.5 billion of the company’s common stock. Devon plans to begin purchasing shares immediately. The shares will be acquired in the open market, and the timing of purchases may depend upon market conditions.
Read the full analyst report on “DVN”
Zacks Investment Research
