Devon Beats Estimates

Devon Energy Corporation (DVN - Analyst Report) posted better-than-expected results for the third quarter of 2009 due to increased production volume and favorable service and supply costs across all major operating segments. Adjusted EPS of $1.12 surpassed the Zacks Consensus Estimate of 92 cents.

This, however, was significantly lower than $5.68 recorded during the same period last year, because of significantly lower product prices in the quarter. Reported net income was $499 million or $1.12 per share, compared to $2.6 billion or $5.88 per share a year ago.

The combined oil, natural gas and NGL production volume soared 6% to 61.9 million BOE (i.e. 673 thousand BOE per day), driven by production growth at each of Devon’s operating segments. Growth in oil and natural gas liquids production in the United States was greater than the decline in natural gas volumes. The continuing ramp up of volumes at the Jackfish oil sands project led Canadian oil production growth. Daily production volumes of oil, natural gas and NGL averaged 150.4 thousand barrels (up 14%), 2.6 billion cubic feet (up 2%) and 82.3 thousand barrels (up 14%), respectively.

Revenues dipped 65% to $2.1 billion as lower realized energy prices more than offset the production growth. Revenues from oil, natural gas and NGL were $845 million (down 35%), $691 million (down 67%) and $195 million (down 46%), respectively. Marketing and midstream revenues almost halved to $344 million. Realized price, including the impact of hedges, for oil, natural gas and NGL averaged $61.1 per barrel (down 43%), $3.4 per thousand cubic feet (down 57%) and $25.7 per barrel (down 53%), respectively.

Devon benefited from the continued downward pressure on service and supply costs due to weak activity levels across the industry. Costs in nearly every expense category were lower in the third quarter of 2009 compared with the same period in the previous year.

Devon maintains a healthy financial and liquidity position. It generated cash flows of $1.2 billion (before balance sheet changes) in the third quarter, which was sufficient to finance capex and dividend pay-outs for the quarter. Devon exited the third quarter with more than $900 million of cash on hand and $1.9 billion of unused credit facilities. It generated $168 million of free cash flow in the quarter. At quarter-end, Devon’s net debt to adjusted capitalization was 31%.

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