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Devon Beats Earnings Estimates

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Oil & gas company Devon Energy Corp. (DVN - Free Report) reported second-quarter 2013 adjusted earnings per share of $1.21, 28.7% higher than the Zacks Consensus Estimate of 94 cents. The results substantially surpassed the prior-year quarter results of 55 cents by 120%.

The year-over-year growth was driven by higher production and better realized price of its products sold compared to last year.

On a GAAP basis, the company reported earnings of $1.68 per share versus $1.18 in the year-ago quarter. The difference of 47 cents between the operating and GAAP number in the reported quarter was due to a one-time gain of $232 million from oil, gas and NGL derivatives, offset by charges worth $40 million.


Devon’s quarterly revenues of $3.09 billion surpassed the Zacks Consensus Estimate of $2.65 billion by 16.6% and year-ago revenues by 20.8%.

Revenues improved year over year primarily due to higher revenues from oil, gas and NGL sales and Marketing and Midstream segments.

Highlights of the Release

Total average daily production in second quarter 2013 was 698 thousand barrels of oil equivalents (Mboe), exceeding the top end of the guidance by 8 thousand barrels of oil. Devon’s oil and natural gas liquids production improved 14% and 19.4% year over year, respectively. However, a nearly 5% decline in natural gas production from the year-ago quarter marginally offset the total production.

Total expenses in the reported quarter were $2.04 billion (excluding asset impairments and restructuring costs), increasing 12.1% from the year-ago level. Devon experienced an 8.9% increase in lease operating expenses, while its Marketing and Midstream operating costs and expenses increased 82.8% from the year-ago quarter.

Realized Prices

Realized oil prices in the quarter were $77.17 per barrel, up 7.4% from $71.84 per barrel in the year-ago quarter.  Natural gas price realization was up 28.2% year over year to $3.41 per thousand cubic feet (Mcf) from $2.66 per Mcf in the year-ago quarter.

Realized prices for natural gas were down 16% to $26.39 per barrel from $31.42 per barrel in the year-ago quarter.

Total realized prices in the second quarter were $35.23 per barrel of oil equivalent (boe), up 15.5% year over year.

Financial Health

As of Jun 30, 2013, the company’s cash balance totaled $3.36 billion versus $4.63 billion as of Dec 31, 2012.

Devon’s cash flow from operating activities in second quarter 2013 was $1.39 billion, marginally lower than $1.42 billion recorded in the year-ago quarter.

Capital expenditure in the reported quarter was $1.64 billion versus $2.18 billion in the year-ago quarter.

Long-term debt as of Jun 30, 2013 was $7.9 billion, declining $0.5 billion from $8.5 billion as of Dec 31, 2012.

Other Company Releases

Encana Corp. (ECA - Free Report) posted net earnings of 34 cents per share in second quarter 2013, beating the Zacks Consensus Estimate of 14 cents by 142.8%.

EXCO Resources Inc. posted net earnings of 10 cents per share in second quarter 2013, lagging the Zacks Consensus Estimate of 11 cents by 9.09%.

Noble Energy Inc. (NBL - Free Report) reported adjusted earnings per share of 69 cents for the second quarter 2013, lagging the Zacks Consensus Estimate by 5.5%.

Our View

Devon Energy continues to focus on oil and liquid generation, which is its highest margin product. Moreover, the solid performance from its overseas operation enabled the company to redirect $2.0 billion of foreign cash to the U.S. at an estimated tax rate of 5%. This will in a way help the company to fund its future development plans. The positive findings in new Woodford Shale oil play could add more oil barrels to its generation portfolio.  

During the reported quarter, the company made some changes in its leadership positions. We believe since both the corporate officers promoted are seasoned campaigners at Devon the performance of the company would get a boost.

Based in Oklahoma City, Okla., Devon Energy Corporation is an independent energy company engaged primarily in exploration, development and production of oil and natural gas. With a market cap of $22.65 billion, the company has 5,700 full time employees. Devon Energy currently retains a Zacks Rank #3 (Hold).

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