Devon cuts another $300 million from its capex

Oklahoma City-based Devon Energy Corp. announced Monday it has cut another $300 million for the remainder of the 2020 budget, leaving a $1 billion revised capital outlook. It means a reduction of nearly 45 percent of the company’s original budget and follows an announced March 12 decrease of $500 million or 30 percent of the budget.

The company hinted it might have to make even more cuts in its budget, depending on what happens with oil prices.

 

Devon explained the $300 million of incremental capital reductions will be driven by the deferral of activity in the Eagle Ford, improved capital efficiencies in the Delaware Basin and lower service-cost pricing attained across the company’s asset portfolio.

When the company made the first announcement of a reduced budget, it said the $500 million in capital reductions would be diversified across Devon’s portfolio with the STACK in Oklahoma and the Powder River Basin in Wyoming assets receiving the most substantial cuts proportionally. Devon said in early March it would focus development activity in the Delaware Basin of West Texas and the Eagle Ford of South Texas

With the newest revised capital plan, Devon now expects to fund its 2020 capital program within operating cash flow at current strip pricing. Beyond the spending cuts announced Monday, Devon is prepared to further reduce capital activity should commodity prices remain weak to protect its financial strength.

“Our top priority in this environment is to protect Devon’s financial strength and liquidity,” said Dave Hager, president and CEO. “Our decisive actions to date have allowed us to rapidly recalibrate drilling and completion activity to ensure we can fund all our 2020 capital requirements within cash flow. We will continue to assess market conditions and adjust activity levels as necessary to ensure the long-term viability of our business.”

The company has also entered into regional basis swaps in an effort to provide additional protection against lower commodity prices across its asset portfolio.

For details on Devon’s updated regional basis hedge position, please see the tables below:

Oil Basis Swaps
Period   Index   Volume (Bbls/d)   Weighted Average Differential to WTI ($/Bbl)
Q1-Q4 2020 Argus MEH 40,679 $ 0.63
Q1-Q4 2020 Midland Sweet 23,835 $ (1.23 )
Natural Gas Basis Swaps                
Period   Index   Volume (MMBtu/d)   Weighted Average Differential to Henry Hub ($/MMBtu)
Q1-Q4 2020 Panhandle Eastern Pipe Line 30,000 $ (0.47 )
Q1-Q4 2020 El Paso Natural Gas 60,000 $ (0.76 )
Q1-Q4 2020 Houston Ship Channel 26,703 $ (0.02 )

As previously disclosed on March 19, 2020, the company has approximately 80 percent of its estimated oil production in 2020 protected at an average floor price of nearly $45 WTI. Additionally, Devon has secured hedges on approximately 40 percent of its estimated natural gas production in 2020 at an average Henry Hub protected floor price of $2.35 per million cubic feet. For additional details see the tables below:

  WTI Oil Price Swaps     WTI Oil Price Collars  
Period Volume (Bbls/d) Weighted Average Price ($/Bbl) Volume (Bbls/d) Weighted Average Floor Price ($/Bbl) Weighted Average Ceiling Price ($/Bbl)
Q1-Q4 2020 66,625 $ 38.57 54,750 $ 51.47 $ 61.52
  Henry Hub Gas Price Swaps     Henry Hub Gas Price Collars  
Period Volume (MMBtu/d) Weighted Average Price ($/MMBtu) Volume (MMBtu/d) Weighted Average Floor Price ($/MMBtu) Weighted Average Ceiling Price ($/MMBtu)
Q1-Q4 2020 81,600 $ 2.77 132,750 $ 2.09 $ 2.52

The company will provide detailed production, operating cost and capital expenditure updates in conjunction with first-quarter reporting.

Source: Devon Energy