On Nov 14, 2017, we issued an updated research report on Devon Energy (DVN - Free Report) . The company is currently focused on making the most of its high-margin production zones and resorting to cost-saving initiatives, in order to boost performance. Additionally, divestment of non-core assets is a key factor.
Owning to stellar production from domestic oil plays, the company is well poised to deliver a significant increase in the domestic output in 2018 from 2017 levels. However, the highly competitive nature of the oil and gas industry continues to be a headwind.
Devon Energy's third-quarter earnings surpassed estimates by 17.9%, on the back of increased productionand cost-cutting initiatives. The company registered positive earnings surprise in last four quarters, reflecting an average surprise of 13.77%.
In the third quarter, the company's lease-operating expenses (LOE) reflected a $10-million sequential decline. Additionally, it resulted in savings of over $1.4 billion in annualized operating and G&A expenses. The company expects cost savings to be sustainable in 2017, owing to higher production rates from the company’s U.S. resource plays and relatively flat LOE costs.
Devon Energy’s “2020 Vision” is expected to introduce advance technology to produce higher volumes from wells and generate peer-leading returns on invested capital for shareholders.
Devon Energy’s divestments of non-core assets worth $3.2 billion in 2016 and subsequent repayment of debt helped to lower annual interest burden by $120 million. The company has sold $420 million of assets year to date and is on schedule to achieve divestiture target of $1 billion non-core assets in the next 12–18 months.
However, operations of oil and gas companies are often disrupted natural calamities and technical hindrances. Devon Energy’s operations in the south Texas Eagle Ford region were dampened due to storm related curtailment in the recent months. The company’s domestic production declined 15,000 barrels per day, of which 65% was oil.
The competitive oil and gas industry can act as a hindrance to Devon Energy’s prospects. Strong financial background and global presence provide other players in the market to cope with the falling price environment. Consequently, this might limit Devon’s capacity to apply for new drilling rights or acquire properties.
Devon Energy Corporation Price and Consensus
Zacks Rank & Key Picks
Devon Energy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the Oils-Energy space include Denbury Resources Inc. (DNR - Free Report) , Northern Oil and Gas, Inc. (NOG - Free Report) and Rice Midstream Partners LP .All the stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Denbury Resources posted third-quarter 2017 earnings from continuing operations of 4 cents per share, comparing beating the Zacks Consensus Estimate loss of a penny by 500%. The company’s 2017 estimates increased from a loss of a cent to earnings of four cents per share in the last 30 days.
Northern Oil posted third-quarter 2017 earnings from continuing operations of 4 cents per share, beating the Zacks Consensus Estimate loss of a penny by 500%. The company’s 2017 estimates increased from a loss of a cent to earnings of two cents per share in the last 30 days.
Rice Midstream posted third-quarter 2017 earnings from continuing operations of 48 cents per share, beating the Zacks Consensus Estimate of 37 cents by 29.7%. The company’s 2017 estimates increased from $1.52 per share to $1.56 per share in the last 30 days.
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