The second quarter proved to be another strong one for Oklahoma City-based Devon Energy as the firm reported $1.9 billion or $2.93 per diluted share.
Adjusting for items analysts typically exclude from estimates, the company’s core earnings were $1.7 billion or $2.59 per diluted share.
Devon also reported its highest quarterly amount of free cash flow in the company’s 51-year history. It totaled $2.1 billion of free cash flower while operating cash flow totaled $2.7 billion, a more than two-fold increase versus a year ago. The $2.1 billion free cash flow came as the company had capital reinvestment rates at 22% of cash flow.
“The second quarter saw our business continue to strengthen and build momentum as we delivered systematic execution across the
financial, operational and strategic tenets of our cash-return business model,” said Rick Muncrief, president and CEO.
“This success was showcased by production from our Delaware-focused program that exceeded guidance expectations, our
streamlined cost structure captured the full benefit of higher commodity prices and we returned record-setting amounts of cash to shareholders. In addition, we took important steps to strengthen the quality and depth of our asset portfolio.”
“As a result of the strong financial and operational performance achieved year to date, we have updated our full-year 2022 guidance,” Muncrief commented. “This improved outlook raises production targets, increases free cash flow projections and enhances our ability to accelerate the return of capital to shareholders.”
FINANCIAL RESULTS
The company’s investment-grade financial position also continued to strengthen in the second quarter with cash balances increasing
by $832 million to a total of $3.5 billion. Devon exited the quarter with an outstanding debt balance of $6.5 billion and a net debt-to EBITDAX ratio of only 0.4 times.
RETURN OF CAPITAL
Based on the second-quarter financial performance, Devon declared a fixed-plus-variable dividend of $1.55 per share, an increase of 22 percent from the previous quarter. This dividend payout represents an annualized yield of 11 percent based on the company’s share price as of July 29, 2022.
As of the end of July, Devon repurchased 23.9 million shares, or 4 percent of its outstanding shares, at a total cost of $1.2 billion.
OPERATING RESULTS
Production for the second quarter averaged 616,000 oil-equivalent barrels (Boe) per day, an increase of 7 percent from the first quarter of 2022. Oil production accounted for the largest component of the company’s product mix at 49 percent of total volumes.
Upstream capital spending was 5 percent below guidance, totaling $513 million in the second quarter. Devon’s capital program averaged 19 operated drilling rigs and 67 gross operated wells were placed online during the quarter.
Production costs, including taxes, averaged $13.01 per Boe. Devon’s low operating cost structure, coupled with the benefits of an oilweighted production mix, expanded field-level cash margins to $60.12 per Boe in the quarter. This represents a 22 percent
improvement from the first quarter of 2022.
The company’s administrative and financing costs improved by 9 percent year-over-year, excluding the early retirement of debt.
These cost reductions were achieved through merger-related synergies and reduced interest expense.
ASSET-LEVEL HIGHLIGHTS
Delaware Basin: Production increased 22 percent year over year to an average of 436,000 Boe per day. The growth was driven
by 52 wells completed across targeted intervals in the Bone Spring and Wolfcamp formations. Capital activity was headlined by a 12-well program at the company’s Todd area in Lea and Eddy County.
Initial 30-day rates from this Wolfcamp-oriented
development averaged 4,500 Boe per day, with per well recoveries estimated to exceed 1.5 million oil-equivalent barrels.
Another key operational highlight was a series of acreage trades that optimized leasehold for future development in the state
line area of Texas and New Mexico. In aggregate, these trades added 7,000 net acres to existing drilling units and unlocked
more than 200 extended-reach drilling locations that were previously constrained to 1-mile developments.
Anadarko Basin: Production averaged 74,000 Boe per day, with liquids-rich gas representing 81 percent of the product mix.
Devon operated 3 drilling rigs supported by a $100 million drilling carry with Dow. With this carry-enhanced activity, the
company spud 14 wells during the quarter and remains on track to complete up to 40 wells in the second half of 2022.
Williston Basin: Production averaged 45,000 Boe per day. In June, Devon announced a bolt-on acquisition in the core of the
basin, adding a contiguous position of 38,000 net acres directly offsetting and overlapping Devon’s existing leasehold. With the
acquisition now closed, production in the Williston Basin is expected to approximate 65,000 Boe per day by the end of the year.
Eagle Ford: Production averaged 38,000 Boe per day, a 6 percent increase compared to the previous quarter. The volume
growth resulted from 14 wells completed in the volatile oil window of the play, where the company’s Dziuk 8-H well achieved
the highest 30-day rate at 3,500 Boe per day. To sustain production, Devon plans to complete 15 wells over the remainder of the year.
Powder River Basin: Production averaged 19,000 Boe per day. Devon plans to run a dedicated rig throughout the second half
of the year and expects to complete 10 wells by year end. This activity is focused on a combination of Parkman and Niobrara
opportunities across the company’s 300,000 net acre position.
2022 OUTLOOK
Devon is raising its full-year 2022 production forecast by 3 percent to a range of 600,000 to 610,000 Boe per day. The improved
volume outlook is due to better-than-expected well performance year-to-date and the impact from a bolt-on acquisition in the
Williston Basin. With the ongoing share repurchase program, production per share is expected to grow 8 percent compared to
2021.
The company also adjusted its upstream capital guidance to a range of $2.2 billion to $2.4 billion versus prior guidance of
approximately $2.1 billion. This updated outlook incorporates $100 million of incremental capital related to the acquisition in
the Williston Basin and the impact of inflationary cost pressures. Devon expects its capital to be fully funded from operating
cash flow, which is forecasted to be nearly $9 billion at current strip pricing.
