Oklahoma City-based Devon Energy Corporation reported net earnings of $565 million posted in the first quarter of 2017, according to a company press release issued Tuesday. The company’s core earnings exceeded expectations and totaled nearly $217 million. Devon’s financials seem to indicate that both the company and the industry are rebounding from an economic downturn. Devon posted a net loss of $3,056 million just a year ago for the same quarter.
The company’s profitability was attributable to strong production growth, higher commodity prices and an improved cost structure. These factors also strengthened Devon’s operating cash flow to $834 million, a 54 percent increase from the fourth quarter of 2016.
Revenue from oil, natural gas and natural gas liquids sales totaled $1.3 billion in the first quarter, a 59 percent improvement compared to the first quarter of 2016. The strong year-over-year revenue growth was driven by higher commodity price realizations and a shift in Devon’s product mix to higher-margin oil production.
The company’s midstream business generated $207 million of operating profit in the first quarter, driven entirely by Devon’s strategic investment in EnLink Midstream. Devon has a 64 percent ownership in EnLink’s general partner and a 24 percent interest in the limited partner. In aggregate, the company’s ownership in EnLink has a market value of approximately $4 billion and is expected to generate cash distributions of approximately $270 million annually.
Devon’s oil-driven capital program delivered strong production results in the first quarter. Oil production averaged 261,000 barrels per day, a 7 percent increase compared to the fourth quarter of 2016. This result exceeded the top end of the company’s guidance range by 5,000 barrels per day.
The strong growth in oil production was driven entirely by Devon’s U.S. resource plays, where the company is attaining the highest margins within its portfolio. In total, U.S. oil production reached 123,000 barrels per day in the first quarter, a 17 percent increase compared to the previous quarter. The robust production growth was largely attributable to higher completion activity across the company’s Eagle Ford and STACK operations.
Devon continued to accelerate investment across its asset portfolio and exited the first quarter with 15 rigs running (includes Eagle Ford partner activity). With these higher activity levels, the company continued to build operational momentum across its world-class U.S. resource plays by commencing production on more than 70 new wells in the quarter that achieved 30-day rates averaging 1,800 Boe per day.
Devon’s financial position remains exceptionally strong, with investment-grade credit ratings and excellent liquidity. The company exited the first quarter with $2.1 billion of cash on hand and, having made $2.5 billion of debt repayments in 2016, Devon has no significant debt maturities until mid-2021, according to the press release.
Looking ahead to 2018, the operational momentum created by accelerated drilling activity in the STACK and Delaware Basin is expected to expand light-oil production in the U.S. by approximately 20 percent compared to 2017.
“Devon’s development programs delivered strong growth in high-value production, significantly enhancing profitability in the first quarter,” said Dave Hager, president and CEO. “Driven by outstanding well productivity from our U.S. resource plays, light-oil production increased by 17 percent in the quarter, exceeding guidance by a wide margin. Importantly, we were able to deliver this outperformance with a low cost structure that is expected to further improve as we progress through the year.”
Devon produced an average of 563,000 barrels of oil per day in the first quarter, up 5% in the first quarter of 2017 when compared to the fourth quarter of 2016. and outpacing the midpoint of previous guidance by 5,000 barrels a day.
“Looking ahead, we expect our operational momentum to build as we continue to accelerate investment across our world-class U.S. drilling programs and shift to full-field development,” said Hager. “With excellent first-quarter results in hand, we are firmly on track to achieve our multi-year growth targets and deliver peer-leading cash flow expansion.”