Oklahoma City-based Devon Energy reported a net loss of $670 million or $1.78 per diluted share for the second quarter of 2020. The earnings report also included Devon’s announcement that it has no plans to curtail oil production in the second half of the year focusing its new drilling efforts in West Texas and none in Oklahoma.
The company explained its earnings were negatively impacted by a $593 million “unrealized change in the fair value of the company’s derivative position due to higher futures commodity pricing.”
The company’s core loss was $66 million or 18-cents a diluted share after the adjustment was made for items that analysts typically exclude from estimates. Devon’s operating cash flow in the second quarter totaled $150 million with EBITDAX reaching $325 million.
While leadership said the company’s financial position was exceptionally strong with excellent liquidity and low leverage, Devon exited the second quarter with $1.7 billion cash and an undrawn credit facility of $3 billion.
The company’s outstanding debt balance at the end of the quarter was $4.3 billion and no outstanding debt maturities are expecrted until late in 2025.
“Our strong second-quarter operational results demonstrate the professionalism of our employees to safely execute our business plan and protect shareholder value,” said Dave Hager, president and CEO.
Some of the highlights for the quarter include oil production which averaged 153,000 barrels per day, a 6 percent increase from the year-ago period. Due to low oil prices in the quarter, Devon elected to voluntarily curtail 10,000 barrels per day. As oil prices have stabilized and begun to recover, the company has no plans to curtail production in the second half of 2020.
Operating costs were below guidance, declining 14 percent year-over-year. The company said its efficiency gains drove capital expenditures 10% below guidance to $203 million in the quarter.
Devon announced it will use its cash on hand, which again amounted to $1.7 billion, to repurchase up to $1.5 billion of additional debt.
“In a separate release issued today, we announced the next phase of our strategic plan to accelerate value creation for
shareholders,” Hager said. “These actions include initiatives to reduce cash costs by $300 million annually, reduce debt
balances by up to $1.5 billion and return cash to shareholders in the form of a $100 million special dividend. These
shareholder-friendly initiatives demonstrate our commitment to a new E&P business model, which moderates growth,
emphasizes capital efficiencies, generates free cash flow and returns increasing amounts of cash directly to our
shareholders.”
The company exited the second quarter with nine operated drilling rigs and one completion crew in the Delaware Basin. Its net production there averaged 149,000 Boe per day which was a 24% increase over a year ago.
In the second quarter, Devon’s Wolfcamp-oriented capital program brought 22 operated wells online across Southeast
New Mexico.
In Wyoming’s Powder River Basin, Devon dropped its drilling rigs and limited activity to bringing four new wells online with an averaged completed well cost of $5.9 million.
For the remainder of 2020, the capital program is focused on appraisal work in the emerging Niobrara oil play. A key upcoming project is the Steinle pad, a 3-well spacing test targeting the Niobrara “B” interval. The Steinle pad is expected to commence production in the third quarter.
Devon reported bringing online 13 development wells in the Eagle Ford play of South Texas where completed well costs averaged $6.6 million. However, Devon and its partner are not currently operating drilling rigs or completion crews in the play. But with 22 high-impact uncompleted wells in its inventory, Devon said it expects to resume capital activity around the end of the year.
In the Anadarko Basin which covers Oklahoma’s STACK and SCOOP plays, Devon stopped all operations of drilling rigs and completion crews. Instead, Devon said its operational focus during the quarter was “concentrated on optimizing base production and reducing controllable downtime across the field.”
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