Just a few months after Devon Energy issued a 2018 outlook predicting 25% growth in oil production and announcing strong revenue growth in the fourth quarter of 2017, the Oklahoma City company announced the start of the layoff of 300 workers. The company announced it expected to save $200 million by 2020 as a result of the cutback in the workforce.
Leadership blamed low oil and natural gas prices and indicated the layoffs represented about 9 percent of the company’s total workforce. The layoffs will take place over the new few weeks according to the company announcement.
CEO Dave Hager issued an internal memo to Devon employees, stating, “Our changing industry requires us to make some difficult decisions, and this one is the most difficult.”
In February’s 4th quarter earnings announcement, the company stated its general and administrative expenses totaled $222 million which represented a 1 percent improvement over a year earlier.
The layoffs occur just two years after Devon made other layoffs and Hager referred to them in the announcement.
“The main feedback we heard from those affected in the 2016 workforce reduction was that they appreciated being treated with respect, transparency and dignity. I assure you that this will be no different.”
In February, Devon executives spoke of an upstream capital budget for 2018 of $2.2 billion to $2.4 billion and indicated it would be self-funded at a $50 a barrel price deck on West Texas Intermediate crude.
The company also maintained that its upstream revenue was $1.3 billion in the fourth quarter, a 35 percent improvement over the fourth quarter of 2016. Devon even called it “strong year-over-year revenue growth” which it said was driven by higher commodity price realizations and an increase in higher-margin liquids production.
The company reported midstream business generated operating profits of $272 million in the fourth quarter, 35 percent better than a year earlier. It also announced that overall for 2017, Devon’s midstream profits reached $912 million, the highest in company history.
At the time, Hager stated in a press release, “In 2018 and beyond, with our low-risk development programs focused in the economic core of the Delaware Basin and STACK plays, we expect to deliver a dramatic step change in capital efficiency, achieve
attractive corporate-level returns and generate substantial amounts of free cash flow at prices above our base
planning scenario of $50 WTI pricing.”
The company revealed a 3-year plan in February but gave no indication or hint of pending layoffs.
“Looking beyond our initial priority of reducing up to $1.5 billion of debt from our upstream business, we plan to return
excess cash flow from operations or divestitures to shareholders through both opportunistic share buybacks
and dividend growth,” said Hager.