Devon Energy sees 2Q drop in earnings but increased oil production


Devon Energy Corp. saw a drop in net earnings in the second quarter as they totaled $690 million or $1.07 per diluted share compared to $995 million, or $1.53 per diluted share, in the first quarter of 2023. At the same time, it also had record oil production.

A day after releasing the report, Devon stocks suffered a more than 7% fall on Wednesday. Company shares fell $3.94 or 7.34% to finish at $49.74.

Core earnings were down as well. They were $755 million or $1.18 per diluted share, below the $952 million, or $1.46 per diluted share reported in the first quarter of 2023.

Devon’s operating cash flow in the second quarter totaled $1.4 billion which did not match first quarter operating cash flow of $1.7 billion. The company’s cash balance also fell short of the first quarter. It totaled $488 million and an undrawn credit facility of $3 billion.
At the end of the first quarter, the company had a cash balance of $887 million and an undrawn credit facility of $3 billion.

Despite the decline in earnings, Devon’s second quarter oil production reached an all-time high of 323,000 barrels a day.

The company’s share-repurchase program also retired 3.8 million shares at a total cost of $200 million in the second quarter and Devon’s balance sheet improved with the retirement of $242 million of debt. The firm also indicated that its Delaware Basin completion activity positions the firm for more oil volume growth in the third quarter.

“Devon’s second-quarter performance once again demonstrated the quality of our asset portfolio, the execution capabilities of our
team and the financial benefits of our disciplined capital plan,” said Rick Muncrief, president and CEO.

He said one of the firm’s key accomplishments was its record-setting oil production

“On the financial front, our disciplined reinvestment rates allowed us to generate free cash flow for the 12th consecutive quarter, and we returned $690 million of capital to shareholders through a combination of dividends and share repurchases.”

While revenues might not have exceeded or matched those in the first quarter, Muncrief believes the trajectory of Devon’s business sets up the company for a strong outlook in 2024.

“ With current market dynamics, we plan to maintain steady activity levels to optimize returns and allow for the benefits of any service cost deflation to accrue to our shareholders in the form of higher free cash flow generation and higher cash returns,” Muncrief commented.

During the quarter, Devon averaged 25 operated drilling rigs and 131 gross operated wells were placed online. In the Delaware Basin, the firm operated 16 rigs and 4 completion crews, resulting in 76 gross wells placed online, an increase of 81% over the first quarter.

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Devon’s operations in the Avalon, Bone Spring and Wolfcamp formations were also strong producers. Activity was highlighted by the Mule development in Eddy County that successfully co-developed multiple zones in the Wolfcamp B, with recoveries estimated to surpass 2 million BOE per well. These highly commercial results de-risk and enhance the economic expectations on approximately 100 Wolfcamp B locations across our acreage position in the area.

In 2023, Devon plans to bring online more than 230 new wells across its Delaware Basin acreage, representing greater than 60
percent of the company’s total capital activity for the year.

The company’s Eagle Ford production 74,000 Boe a day, a 9% over the previous quarter. In 2023, Devon plans to run 3 rigs and bring online more than 90 wells and up to 10 refracs across its 82,000 net acre position.

The company’s Williston Basin production of 56,000 Boe a day was 5% more than the firsty quarter and Devon plans to bring online nearly 40 gross wells in 2023.

Devon said it plans to drill up to 15 wells in the Powder River Basin where production averaged 19,000 Boe a day.

Production in the Anadarko Basin, closer to home, averaged 89,000 Boe a day which was 10% higher than the first quarter.
The volume growth was driven by 16 gross wells placed online that were funded by a drilling carry from the company’s joint venture with Dow. Devon expects to operate a 3-rig program for the remainder of the year and spud approximately 40 wells in 2023.

As for the remainder of the year, Devon indicated it expects to sustain production in the range of 643,000 to 663,000 Boe a day and total capital investment for the year will be from $3.6 billion to $3.8 billion.

The company expects to place online around 90 gross wells in the third quarter, with capital spending expected to approximate
$900 million. The decline in capital spending is driven by the drop of a temporary frac crew in the Delaware Basin and efficiency
gains that accelerated completion activity into the first half of the year. This level of activity is expected to drive oil production
to a range of 322,000 to 330,000 barrels per day in the third quarter.