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Devon (DVN) Beats on Q3 Earnings, Cost Savings on Track
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Devon Energy Corp. (DVN - Free Report) reported third-quarter 2016 adjusted earnings per share of 9 cents, beating the Zacks Consensus Estimate of 5 cents by 80%.
On a GAAP basis, the company reported earnings of $1.89 per share, while the year-ago quarter figure was a loss of $8.94. The difference between operating and GAAP figures in the reported quarter was due to asset impairment of 38 cents, expenses of 10 cents for early retirement of debts, restructuring and transaction costs of a penny, deferred tax asset valuation allowance of 78 cents, gain of $1.48 on asset sales, and foreign currency adjustments of a penny.
Devon’s quarterly revenues of $4.23 billion surpassed the Zacks Consensus Estimate of $2.59 billion by 63.3%. Total revenue was also up 17.5% from the year-ago figure of $3.6 billion.
Highlights of the Release
In the third quarter of 2016, Devon’s total production averaged 577,000 barrels of oil equivalent (boe) per day, down 15.1% from the year-ago level. Total production touched 555,000 boe per day in the reported quarter primarily aided by its core assets.
At the field level, the company is effectively controlling costs. Thanks to its initiatives, lease operating expenses (LOE) were down 30.4% year over year to $355 million. The decline in LOE was primarily driven by improved power and water-handling infrastructure, declining labor expense and lower supply chain cost.
Operating income in the reported quarter was $1,465 million. In the year-ago quarter, the company had incurred operating loss of $5,444 million.
During the reported quarter, Devon lowered its outstanding debt levels by $1.2 billion, which in turn lowered its annual interest burden by nearly $54 million.
Realized oil prices in the quarter were $33.11 per barrel, down 40.8% from $55.94 per barrel in the year-ago quarter. Realized prices for natural gas were down 12.5% to $2.20 per thousand cubic feet (Mcf) from $2.71 in the year-ago quarter.
Total realized prices in the third quarter, including cash settlements, were $21.30 per boe, down 31.7% year over year due to lower commodities prices.
Financial Health
As of Sep 30, 2016, the company had a cash balance of $2,385 million, up from $2,310 million as of Dec 31, 2015.
Long-term debt as of Sep 30, 2016 was $11,004 million, compared with $12,056 million as of Dec 31, 2015. The company used to divesture proceeds to repay debts and strengthen its balance sheet.
Devon’s cash flow from operating activities in third-quarter 2016 was $726 million, compared with $1,553 million in the year ago quarter.
Capital expenditure was $421 million, lower than $1,080 million a year ago.
Guidance
Devon Energy estimates total production from its assets in the fourth quarter of 2016 to be in the range of 524,000–546,000 boe per day.
Capital expenditure (capex) in the fourth quarter is expected to be in the range of $470–$520 million. E&P capital expenditure is expected in the $400–$425 million band.
Devon Energy further lowered its 2016 LOE outlook by $55 million from its previously guided range of $1.6–$1.7 billion. The company expects LOE, production taxes and G&A costs to decline by $1 billion from the 2015 levels.
Peer Releases
Anadarko Petroleum Corporation reported third-quarter 2016 adjusted loss of 89 cents per share, wider than the Zacks Consensus Estimate of a loss of 57 cents.
TOTAL S.A. reported third-quarter 2016 operating earnings of 84 cents per share, lagging the Zacks Consensus Estimate of 85 cents by a penny.
ExxonMobil Corp. (XOM - Free Report) reported earnings of 63 cents per share, beating the Zacks Consensus Estimate of 60 cents.
Our View
Devon Energy was able to beat third-quarter estimates primarily on the back of its cost saving initiatives, which helped the company counter the soft commodity price environment.
Devon’s focus on high-quality North American properties has led to robust oil output. We expect persistently strong production in the Eagle Ford and Delaware Basin assets, and the Canadian heavy oil operations to help retain production levels.
Devon has also been streamlining operations through the divesture of non-core assets. The company completed its asset sale target for 2016 by divesting assets worth $3.2 billion. As intended, it utilized the proceeds to lower its outstanding debt by $1.2 billion. In addition, the company has plans to make strategic investments in the high-quality resource plays like STACK and Delaware Basin.
Devon is also forging ahead with its cost-reduction initiatives and management expects to generate total savings of nearly $1,000 million over the 2015 levels — this could prove to be a big positive during challenging times.
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Devon (DVN) Beats on Q3 Earnings, Cost Savings on Track
Devon Energy Corp. (DVN - Free Report) reported third-quarter 2016 adjusted earnings per share of 9 cents, beating the Zacks Consensus Estimate of 5 cents by 80%.
On a GAAP basis, the company reported earnings of $1.89 per share, while the year-ago quarter figure was a loss of $8.94. The difference between operating and GAAP figures in the reported quarter was due to asset impairment of 38 cents, expenses of 10 cents for early retirement of debts, restructuring and transaction costs of a penny, deferred tax asset valuation allowance of 78 cents, gain of $1.48 on asset sales, and foreign currency adjustments of a penny.
Revenues
Devon’s quarterly revenues of $4.23 billion surpassed the Zacks Consensus Estimate of $2.59 billion by 63.3%. Total revenue was also up 17.5% from the year-ago figure of $3.6 billion.
Highlights of the Release
In the third quarter of 2016, Devon’s total production averaged 577,000 barrels of oil equivalent (boe) per day, down 15.1% from the year-ago level. Total production touched 555,000 boe per day in the reported quarter primarily aided by its core assets.
At the field level, the company is effectively controlling costs. Thanks to its initiatives, lease operating expenses (LOE) were down 30.4% year over year to $355 million. The decline in LOE was primarily driven by improved power and water-handling infrastructure, declining labor expense and lower supply chain cost.
Operating income in the reported quarter was $1,465 million. In the year-ago quarter, the company had incurred operating loss of $5,444 million.
During the reported quarter, Devon lowered its outstanding debt levels by $1.2 billion, which in turn lowered its annual interest burden by nearly $54 million.
DEVON ENERGY Price, Consensus and EPS Surprise
DEVON ENERGY Price, Consensus and EPS Surprise | DEVON ENERGY Quote
Realized Prices
Realized oil prices in the quarter were $33.11 per barrel, down 40.8% from $55.94 per barrel in the year-ago quarter. Realized prices for natural gas were down 12.5% to $2.20 per thousand cubic feet (Mcf) from $2.71 in the year-ago quarter.
Total realized prices in the third quarter, including cash settlements, were $21.30 per boe, down 31.7% year over year due to lower commodities prices.
Financial Health
As of Sep 30, 2016, the company had a cash balance of $2,385 million, up from $2,310 million as of Dec 31, 2015.
Long-term debt as of Sep 30, 2016 was $11,004 million, compared with $12,056 million as of Dec 31, 2015. The company used to divesture proceeds to repay debts and strengthen its balance sheet.
Devon’s cash flow from operating activities in third-quarter 2016 was $726 million, compared with $1,553 million in the year ago quarter.
Capital expenditure was $421 million, lower than $1,080 million a year ago.
Guidance
Devon Energy estimates total production from its assets in the fourth quarter of 2016 to be in the range of 524,000–546,000 boe per day.
Capital expenditure (capex) in the fourth quarter is expected to be in the range of $470–$520 million. E&P capital expenditure is expected in the $400–$425 million band.
Devon Energy further lowered its 2016 LOE outlook by $55 million from its previously guided range of $1.6–$1.7 billion. The company expects LOE, production taxes and G&A costs to decline by $1 billion from the 2015 levels.
Peer Releases
Anadarko Petroleum Corporation reported third-quarter 2016 adjusted loss of 89 cents per share, wider than the Zacks Consensus Estimate of a loss of 57 cents.
TOTAL S.A. reported third-quarter 2016 operating earnings of 84 cents per share, lagging the Zacks Consensus Estimate of 85 cents by a penny.
ExxonMobil Corp. (XOM - Free Report) reported earnings of 63 cents per share, beating the Zacks Consensus Estimate of 60 cents.
Our View
Devon Energy was able to beat third-quarter estimates primarily on the back of its cost saving initiatives, which helped the company counter the soft commodity price environment.
Devon’s focus on high-quality North American properties has led to robust oil output. We expect persistently strong production in the Eagle Ford and Delaware Basin assets, and the Canadian heavy oil operations to help retain production levels.
Devon has also been streamlining operations through the divesture of non-core assets. The company completed its asset sale target for 2016 by divesting assets worth $3.2 billion. As intended, it utilized the proceeds to lower its outstanding debt by $1.2 billion. In addition, the company has plans to make strategic investments in the high-quality resource plays like STACK and Delaware Basin.
Devon is also forging ahead with its cost-reduction initiatives and management expects to generate total savings of nearly $1,000 million over the 2015 levels — this could prove to be a big positive during challenging times.
Devon Energy currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>