Devon Energy Corp.reported another strong earnings report for the third quarter, but not quite as strong as its second quarter. And it’s not declaring a dividend as a result of lower prices.
The Oklahoma City company recorded net earnings of $812 million or $1.30 a share and core earnings of $683 million and $1.10 a share.
The third quarter earnings were below the $844 million and $1.34 a share in net earnings recorded in the second quarter. It also had core earnings in the previous quarter of $885 million and $1.41 per dilluted share.
Devon also recorded 335,000 barrels of oil production a day, the same as the second quarter. The third quarter production beat guidance by 4% while the second quarter production exceeded guidance by 3%.
With the recent pull back in commodity prices and equities, as well as the additional leverage taken on by the company, Devon has elected not to declare a variable dividend in the current quarter. Capital allocation will focus on strengthening the balance sheet and returning capital to shareholders through the fixed dividend and share buybacks.
“Devon delivered another quarter of strong operational and financial results, showcasing the strength of our disciplined strategy,” said Rick Muncrief, president and CEO. “The Delaware Basin continues to be a great contributor to our success. The exceptional well productivity and cycle time improvements we continue to see in this basin contributed to production volumes surpassing our guidance while keeping capital expenditures below forecasted levels.”
He was impressed with another quarter of “significant free cash flow generation” which allowed the company to return value to the shareholders through Devon’s ongoing share buyback program.
“Looking ahead to the remainder of 2024 and into 2025, we enhanced the quality and depth of our asset portfolio with the recent acquisition of Grayson Mill Energy. This transaction marks a major milestone, increasing our operating scale and strengthening our outlook for the fourth quarter and beyond.”
The $5 billion Grason Mill Energy acquisition gave Devon a stronger foothold in the Williston Basin and involved 307,000 net acres, 500 undrilled gross locations and 300 high-quality refrac candidates. Devon used proceeds from $2.25 billion of senior notes during the third quarter to fund the cash portion of the Grayson Mill acquisition.
The acquisition adds a high-margin production mix that enhances Devon’s position as one of the largest oil producers in the U.S.
With the recent pull back in commodity prices and equities, as well as the additional leverage taken on by the company, Devon has elected not to declare a variable dividend in the current quarter. Capital allocation will focus on strengthening the balance sheet and returning capital to shareholders through the fixed dividend and share buybacks.
OPERATING RESULTS
Devon’s capital activity in the third quarter averaged 20 operated drilling rigs and 5 completion crews across its asset portfolio. This
level of activity resulted in 108 gross operated wells being placed online, with an average lateral length of 10,000 feet. Upstream
capital spending in the third quarter was $817 million. Midstream, carbon and corporate capital totaled $61 million in the quarter.
Devon’s oil production in the third quarter reached 335,000 barrels per day, exceeding guidance by 4 percent.
Total companywide production averaged 728,000 oil-equivalent barrels (Boe) per day in the third quarter. This represents a 3 percent increase in production compared to the previous quarter. Production in the quarter benefited from the closing of Grayson Mill in late September, which contributed approximately 5,000 Boe per day and 3,000 barrels of oil per day to the quarterly average.
Devon’s growth and outperformance in the third quarter was primarily driven by its Delaware Basin asset, which accounted for 67 percent of companywide volumes at 488,000 Boe per day. This production result represents a growth rate of 6 percent quarter-overquarter, driven by 55 gross operated wells being placed online during the quarter. The outperformance was driven by strong well productivity and base production that continued to exceed expectations.
For the third quarter, Devon’s upstream revenues totaled $2.7 billion. The company’s realized price during the period, including
commodity hedges, was $40.71 per Boe, compared with the prior quarter of $44.29 per Boe. The lower price realization was
primarily driven by reduced crude and natural gas liquids benchmark pricing. Also contributing to the lower pricing was the
expanded regional gas price differential in the Delaware Basin driven by infrastructure constraints.
FOURTH-QUARTER 2024 OUTLOOK
Due to the impact of the Grayson Mill acquisition and strong year-to-date performance, Devon is revising its production forecast higher in the fourth quarter to a range of 811,000 to 830,000 Boe per day, a 13 percent increase compared to the third quarter. This fourth-quarter volume growth will be driven by an estimated 110,000 Boe per day of incremental production from the company’s Williston Basin acquisition.
Beginning with the fourth quarter, the Williston Basin will be combined with the Powder River Basin and reported as the Rockies business unit.