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Devon Tops on Oil Output

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Devon Energy Corp. (DVN - Free Report) reported fourth-quarter 2012 adjusted earnings per share of 78 cents, a penny higher than the Zacks Consensus Estimate. However, the results were 49.7% lower than the prior-year quarter.

On a GAAP basis, the company reported a loss 89 cents versus earnings of $1.29 in the year-ago quarter. The difference of operating and GAAP number of $1.67 in the reported quarter was due to a non-cash asset impairment charge of $896 million.

In 2012, Devon Energy posted earnings of $3.26 per share, 1.6% higher than the Zacks Consensus Estimate.  

GAAP loss for 2012 was 52 cents per share versus earnings of $11.25 per share in 2011. The difference between operating and GAAP numbers was due to a non-cash asset impairment charge.


Devon’s quarterly revenues of $2,581 million surpassed the Zacks Consensus Estimate of $2,382 million by 8.3% but fell short of year-ago revenues by $4 million.

The full-year 2012 results came in at $9,502 million, exceeding the Zacks Consensus Estimate of $9,153 million by 3.8%, while lagging the year-ago figure of $11,454 million by 17.8%.

Revenues declined year over year primarily due to lower average realized prices of the products sold in 2012.

Highlights of the Release

In 2012, Devon was able to produce 250 million barrels of oil equivalent (boe), 10 million boe higher than 2011 levels. The increase in production was primarily due to a 20% year-over-year rise in oil production from its North American fields.

Lease operating expenses of the company in 2012 increased to $2.1 billion from $1.85 billion in 2011.

Taking advantage of the strong oil prices, the company hedged 115,000 barrels per day of oil production for 2013. The company also added to its natural gas hedge position. Devon has hedged 1.3 billion cubic feet per day at a weighted average floor price of $3.87.

During the fourth quarter the company decided to combine its existing E&P operation in the U.S. as a result of which it will incur $125 million out of which 20% will be non-cash expenses. This strategic move will generate annual cost savings of $80 million for the company.

Realized Prices

Realized oil prices in the quarter were $74.32 per barrel, down 5.3% from $78.47 per barrel in the year-ago quarter. Realized prices for natural gas liquids were down 33.5% to $28.03 per barrel from $42.16 per barrel in the year-ago quarter.

Natural gas prices during the quarter remained at depressed levels. Natural gas price realization was down by 12.1% year over year to $3.33 per thousand cubic feet (Mcf) from $3.79 per Mcf in the year-ago quarter.

Total realized prices in the fourth quarter were $33.41 per barrel of oil equivalent (boe), down 8.9% year over year.


At year-end 2012, Devon’s proved reserves were 3.0 billion equivalent barrels (BBoe). During the year the company added 381 million Boe through extension and new discoveries.

Devon’s total proved reserves for 2012 included 2.16 BBoe of proved developed reserves, making up 72% of total reserves. The company’s year-end proved reserves were composed of 798 million barrels of crude oil, 9.44 trillion cubic feet of natural gas and 591 million barrels of natural gas liquids.

Financial Health

Devon’s operating cash flow in 2012 was $4.9 billion compared with $6.2 billion in 2011.

As of Dec 31, 2012, the company’s cash balance totaled $4.6 billion versus $5.5 billion as of Dec 31, 2011.

Long-term debt as of Dec 31, 2012, was $8.5 billion versus $5.96 billion as of Dec 31, 2011.

Other Company Release

Anadarko Petroleum Corporation (APC - Free Report) posted net earnings of 91 cents per share in fourth quarter 2012, beating the Zacks Consensus Estimate of 70 cents by 30%.

Apache Corp. (APA - Free Report) posted net earnings of $2.27 per share in fourth quarter 2012, lagging the Zacks Consensus Estimate by 1.30%.

Our View

Devon Energy has surpassed our expectation riding on strong production and realized prices. During 2012, the company incurred higher operating costs, primarily due to its oil heavy production strategy. We believe the two strategic joint ventures entered into by the company in 2012 will strengthen its balance sheet and provide new oil based opportunities.

Devon Energy currently retains a Zacks Rank #3 (Hold). We, however, prefer Range Resources Corporation (RRC - Free Report) having a Zacks Rank #2 (Buy) which is set to release its fourth quarter 2012 results on Feb 26, 2013

Based in Oklahoma City, Oklahoma, 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 $24.53 billion the company has 5,200 full time employees.

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