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Devon Earnings Beat, Sales Lag

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Oil & Gas company Devon Energy Corp. (DVN - Free Report) reported first-quarter 2013 adjusted earnings per share of 66 cents, 10 cents higher than the Zacks Consensus Estimate. However, the results were 37.1% lower than the prior-year quarter.

On a GAAP basis, the company reported a loss $3.34 per share versus earnings of 97 cents in the year-ago quarter. The difference of $4.00 between the operating and GAAP number in the reported quarter was due to a non-cash asset impairment charge of $1.9 billion.


Devon’s quarterly revenues of $1,972 million lagged the Zacks Consensus Estimate of $2,323 million by 15.1% and the year-ago revenues by 21%.

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

Highlights of the Release

Total average daily production in first quarter 2013 was 686.9 thousand barrel of oil equivalents (Mboe). Devon’s Oil and Natural gas liquids production improved 14.3% and 6.2% year over year, respectively. However, nearly 8% decline in natural gas production from the year-ago quarter resulted in a 1% decline in total production from the year-ago quarter.

Total expenses in the reported quarter were $1.98 billion (excluding asset impairments and restructuring costs), increasing 4.8% from the year-ago level. Devon experienced a 2% increase in Lease operating expenses, while its Marketing and midstream operating costs and expenses increased 11.7% from the year-ago quarter.

Taking advantage of the strong natural gas prices, the company hedged 75% of its expected natural gas production for the remaining three quarters of 2013.

Realized Prices

Realized oil prices in the quarter were $62.32 per barrel, down 18.1% from $76.14 per barrel in the year-ago quarter. Realized prices for natural gas liquids were down 20.6% to $28.17 per barrel from $35.49 per barrel in the year-ago quarter.

Natural gas price realization was up 2.3% year over year to $3.09 per thousand cubic feet (Mcf) from $3.02 per Mcf in the year-ago quarter.

Total realized prices in the first quarter were $30.57 per barrel of oil equivalent (boe), down 6.9% year over year.

Financial Health

As of Mar 31, 2013, the company’s cash balance totaled $5.27 billion versus $4.6 billion as of Dec 31, 2012.

Devon’s cash flow from operating activities in first quarter 2013 was $1.0 billion, same as the year-ago quarter level.

Capital expenditure in the reported quarter was $1.9 billion versus $2.08 billion in the year-ago quarter.

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

Other Company Releases

Encana Corporation (ECA - Free Report) posted net earnings of 10 cents per share in first quarter 2013, beating the Zacks Consensus Estimate of 4 cents by 150%.

EXCO Resources Inc. posted net earnings of 13 cents per share in first quarter 2013, beating the Zacks Consensus Estimate of 8 cents by 62.5%.

McMoRan Exploration Co. posted loss of 3 cents per share in first quarter 2013, much narrower than the Zacks Consensus Estimate loss of 12 cents.

Our View

Devon Energy continues to focus on oil and liquid generation, which is its highest margin product. In addition, the company also added to its hedging position to safeguard its oil and gas production from price fluctuations.

However, the cyclical nature of demand for oil, natural gas and NGL and volatility in prices could weigh on the profitability of the company.

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 $22.35 billion, the company has 5,700 full time employees. Devon Energy currently retains a Zacks Rank #3 (Hold).

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