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Devon Energy (DVN) Sets New Target to Cut Methane Emissions

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Devon Energy Corporation (DVN - Free Report) has undertaken an initiative to further lower methane emissions for its U.S. oil and natural gas production operations. In 2018, Devon Energy’s methane-intensity rate was estimated at 0.32%, which is pending U.S. Environmental Protection Agency (“EPA”) review and third-party verification. With the new initiative, it will further lower methane-intensity rate to 0.28% or below by 2025.

Impact of Methane on Environment

Methane gas leaks from oil and gas wells during drilling. Per a report released by EPA, the U.S. oil and gas sector is the largest single source of methane emissions in the country. Methane gas has the potential to do greater damage to the environment as it has the capacity to trap heat more than 80 times than carbon dioxide in the first 20 years after it escapes into the atmosphere from the drilling wells.

Production of oil and natural gas in going to increase in the United States from the current level, primarily due to higher production from rich shale properties. Going forward, Devon Energy intends to produce more oil from high-margin domestic assets, which include U.S. oil producing regions like STACK and Delaware Basin.

Devon Energy’s Initiative is Appreciable

Devon Energy will continue to increase hydrocarbon production. The company decided to exit Canadian operation to focus more on domestic operations.

Devon Energy has undertaken the latest initiative at a time when the new administration proposed less stricter methane gas emission rules, which if approved, will save the industry $75 million a year in regulatory costs within 2019-2025 but increase methane emissions by a total of 380,000 short tons between 2019 and 2025 compared with the EPA’s 2018 baseline estimate.  

U.S. Shale in Focus

The shale revolution significantly increased oil and gas, and hydro-carbon production in the United States. This has attracted the attention of oil and gas super majors that were otherwise busy exploring deepwaters and the Middle East. To further strengthen position in U.S. onshore shales, Occidental Petroleum (OXY - Free Report) made an offer to acquire Anadarko Petroleum (APC - Free Report) as it believes that the latter’s assets in the Permian Basin will complement its existing operation in this resource-rich region.  

According to the U.S. Energy Information Administration, annual U.S. crude oil production reached a record 11.0 million barrels per day (b/d) in 2018 and is expected to move up to 12.4 million b/d in 2019 and further rise to 13.3 million b/d in 2020, which might increase methane emissions unless oil and gas operators start undertaking initiatives on their own like Devon.

Price Movement

Shares of the company have outperformed its industry on a year-to-date basis.



Zacks Rank & Key Pick

Devon Energy currently has a Zacks Rank #3 (Hold). A better-ranked stock from the same industry is Apache Corporation (APA - Free Report) , currently holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apache reported a positive average earnings surprise of 31.12% in the last four quarters and its long-term earnings growth is pegged at 6%. The Zacks Consensus Estimate for 2019 has moved up 41.3% in the past 60 days to $1.13.

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