No wonder Devon Energy leaders called 2021 a “breakout year.” The company reported net earnings of $1.15 billion or $2.23 per diluted share in the fourth quarter of the year leaving leadership excited about the prospects for 2022.
Adjusting for items analysts typically exclude from estimates, the company’s core earnings were $935 million, or $1.39 per diluted share.
Operating cash flow was $1.6 billion in the fourth quarter, a 173 percent increase from the first quarter of 2021 when the WPX
merger closed. Devon reported that this level of cash flow funded all capital requirements and resulted in $1.1 billion of free cash flow in the quarter.
“2021 was a breakout year for Devon that can best be defined by our bold strategic consolidation, unyielding commitment to capital discipline and the successful deployment of our industry leading cash-return business model,” said Rick Muncrief, president and CEO.
For the full-year 2021, operating cash flow totaled $4.9 billion, a more than three-fold increase versus 2020, and Devon generated $2.9 billion of free cash flow, representing the highest total in the company’s 50-year history.
What drove the operating results? Delaware Basin production growth and margin expansion according to the earnings report.
The company stated that the fourth-quarter dividend payout also improved to a record high of $1 a share.
“With our powerful suite of assets and financially-driven strategy, we delivered on exactly what we promised to do by generating a
record-setting amount of free cash flow that was returned to shareholders through market-leading dividend payouts, opportunistic share buybacks, and improvements to our investment-grade financial strength during the year,” Muncrief commented.
Devon also accelerated its cash returns through its share-repurchase program. The company repurchased 14 million shares at a total cost of $589 million during the fourth quarter. As a result, Devon plans to expand the repurchase effort by 60% to $1.6 billion.
The company also said it strengthened its financial position by retiring $1.2 billion in outstanding debt. At the end of 2021, Devon had $2.3 billion cash on hand and plans now to improve its balance sheet by retiring low-premium debt of up to $1 billion in 2022 and 2023.
In crediting production in the Delaware Basin for driving much of the fourth-quarter earnings, Devon said its total production averaged 611,000 oil-equivalent barrels a day, production that beat guidance by 3%.
During the quarter, Devon averaged 16 operated drilling rigs and 4 completion crews with more than 80% of the activity taking place in the Delaware Basin.
Devon remained active in the Anadarko Basin where production averaged 78,000 Boe a day. It operated two drilling rigs in the basin during 2021 supported by a $100 million drilling carry with Dow. It resulted in the company spudding 31 wells with 16 wells commencing first production during the year.
In 2022, Devon plans to accelerate activity to a three-rig drilling program in the Anadarko and bring online approximately 40 new wells across its acreage position. The carried returns from this program compete with any asset in the company’s portfolio.
Devon stated in its earnings report that it is committed to a disciplined maintenance capital program in 2022 and has not made any modifications to its previously announced plan to sustain production in the range of 570,000 to 600,000 Boe per day, with an upstream capital investment of $1.9 billion to $2.2 billion.
Production in the first quarter of 2022 is estimated to be reduced by 3 percent or 15,000 Boe per day due to the impact of
severe winter weather. Adjusting for this downtime, the company expects production to approximate 570,000 Boe per day in
the first quarter.
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