Devon reacts to oil crisis—cuts capital expenditures for rest of the year

The oil crisis has prompted Oklahoma City’s Devon Energy to cut its capital expenditure budget for 2020 by nearly 30 percent. And it means less activity in the STACK.

The company announced Thursday it initiated an immediate decrease of $500 million from the full-year 2020 budget. The revised capital budget is now approximately $1.3 billion.

Devon stated that the biggest cuts will be in its Oklahoma STACK and Wyoming Powder River Basin assets.

“To optimize go-forward investment, the company will focus its development activity in the Delaware Basin and Eagle Ford within the economic core of these top-tier plays,” stated the company in the announcement.

“With the challenging industry conditions, we are committed to taking decisive actions to protect our balance sheet and preserve liquidity,” said Dave Hager, president and CEO. “We have substantial flexibility with our service contracts, allowing us to quickly recalibrate activity to balance capital investment with cash flow. This advantage, combined with our high-quality asset base and excellent liquidity, positions Devon as well as anyone in the E&P space to navigate through this period of extreme commodity price volatility.”

Beyond the immediate spending cuts announced, Devon said it is prepared to further tailor capital activity lower throughout the year should commodity prices remain weak to protect its financial strength. The company said its capital programs have significant flexibility to adjust activity due to minimal exposure to long-term service and supply contracts.

Hager said Devon’s financial position continues to remain exceptionally strong with excellent liquidity and low leverage. The company entered 2020 with $1.8 billion of cash and an undrawn credit facility of $3 billion. Further bolstering the company’s financial flexibility is the benefit of no outstanding debt maturities occurring until the end of 2025.

The company’s hedge position in 2020 also enhances its financial position. Devon has more than 40 percent of its estimated oil production protected for 2020 at a floor price of $53 WTI. The company’s hedge position is composed of swaps and costless collars, with no pricing downside from three-way collars.

Another key factor that will further enhance the company’s financial strength is the sale of the Barnett Shale to Banpu Kalnin Ventures for $770 million. This transaction is scheduled to close on Apr. 15, 2020 and Devon expects no incremental cash taxes associated with the divestiture of these assets.

Source: Devon Energy