Just because it is one of the major energy companies in Oklahoma City with the iconic downtown 50-story office tower doesn’t mean Devon Energy is free of the same kind of oil and gas industry financial challenges faced by every other firm. And if dire steps are needed, Oklahoma’s STACK would be among the company’s first targets to set things right.
The warning came in last week’s third-quarter earnings report which spoke of decreasing commodity prices this year.
“Should management materially reduce planned capital investment and commodity prices remain suppressed, recognition of material asset impairments could become more likely for certain of our assets. Based on our most recent impairment evaluations, if commodity prices remain suppressed and we materially reduce future development plans, our STACK asset would be the most likely asset to require recognition of a material impairment of capitalized costs.”
In its recent third quarter earnings report, the company clearly pointed to steps it was taking as oil prices remained weak and the industry was in a financial slowdown.
“Despite our portfolio enhancements, aggressive cost reductions and operational advancements, our financial results continue to be challenged by commodity prices,” stated Devon in its recent earnings report. ” Our earnings declined in the fourth quarter of 2018 and the first quarter of 2019 due to a decrease in the price we received for our Heavy Oil production in Canada.”
Months later, Devon unloaded its Canadian assets, a move that affected the Oklahoma City company’s cash flow.
“Like earnings, our operating cash flow is sensitive to volatile commodity prices. As prices have declined, our operating cash flow has been negatively impacted. Additionally, our disposition of EnLink in the third quarter of 2018 and our Canadian business in the second quarter of 2019 caused declines in operating cash flow in subsequent quarters,” explained the company.
The company stated that regardless of cashflow fluctuations, it remains focused on capital investment to generate free cash flow.
” As operating cash flow has declined, we have adjusted our capital development plans accordingly.”
Devon came out of the third quarter 2019 with liquidity of $1.7 billion in cash and $3 billion in available credit.
” After completing the $1.5 billion of early retirement of debt in July 2019, we have $4.3 billion of debt outstanding with no maturities until the end of 2025. We currently have approximately 75% of our expected oil production and approximately 45% of our expected gas production protected with hedges for the remainder of 2019,” stated the company.
Devon reported its debt dropped $162 million in the first nine months of 2019 thanks to the repayment of its 6.30 percent senior notes at maturity. Debt decreased $828 million in the first nine months of 2018.
As for debt ratings, Devon has a BBB with a negative outlook from Standard and Poor’s Financial Services and a BBB+ with a negative outlook from Fitch.