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Devon Energy Third Quarter 2020 Results

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   |    Thursday,October 29,2020

Devon Energy Corp. reported its Q3 2020 results.

Highlights:

• Third-quarter oil production totaled 146,000 barrels per day, exceeding midpoint guidance by 6,000 barrels per day

• Delaware Basin efficiency gains drove capital expenditures below midpoint guidance in the quarter

• Production expenses were below guidance, improving 8 percent year over year

• Operating cash flow expanded quarter over quarter to $427 million

• Free cash flow generation reached $223 million in the third quarter

• Barnett Shale asset divestiture was completed on Oct. 1

• Paid $100 million special dividend in conjunction with Barnett divestiture

• Announced transformational merger of equals with WPX Energy on Sept. 28, creating a leading U.S. energy company

CEO Dave Hager commented: “Devon is executing at a very high level on all aspects of our disciplined cash-return business model. Our third-quarter performance was highlighted by record-setting well productivity and capital efficiency gains in the Delaware Basin that drove oil production well above guidance with a total capital investment that was below forecast. Furthermore, this strong operational performance, coupled with significant improvements in our corporate cost structure, positioned us to generate $223 million of free cash flow in the quarter.”

“With our operations successfully scaled to generate free cash flow, our advantaged financial position allows us to accelerate the return of capital to shareholders,” Hager said. “In conjunction with the recent closing of the Barnett Shale divestiture, we rewarded our shareholders with a $100 million special dividend. This action further demonstrates our commitment to the cash- return business model, which moderates growth, emphasizes capital efficiencies, prioritizes free cash flow and returns increasing amounts of cash to shareholders.”

Operating Results

Net production from Devon’s retained assets averaged 326,000 oil-equivalent barrels (Boe) per day during the third quarter. Oil production averaged 146,000 barrels per day, exceeding the company’s midpoint guidance by 6,000 barrels per day. Third- quarter oil production benefited from strong well productivity in the Delaware Basin and better-than-expected base production performance across the portfolio.

Upstream capital spending in the third quarter was $195 million, or 3 percent below midpoint guidance. This positive variance was attributable to efficiency gains in the Delaware Basin and improvements in service-cost pricing. Devon averaged nine operated drilling rigs and three completion crews in the third quarter, all residing in the Delaware Basin.

Devon's production expense totaled $271 million in the third quarter, an 8 percent improvement year over year. The largest component of production expense is lease operating expense and gathering, processing and transportation costs, which totaled $225 million in aggregate, or $7.49 per Boe in the quarter. Effective cost management efforts and efficient field-level operations drove per-unit rates 8 percent below guidance expectations for the quarter.

The company also improved its general and administrative (G&A) cost structure during the quarter. G&A expenses totaled $75 million in the third quarter, a 30 percent improvement from the third quarter of 2019. The lower overhead costs were primarily driven by reduced personnel expense.

Additionally, the company is lowering its 2020 lease operating expense and gathering, processing and transportation costs outlook by 6 percent compared to previous expectations.

WPX Merger

On Sept. 28, 2020, Devon announced that it had entered into an agreement to combine in an all-stock merger of equals transaction with WPX Energy. The strategic combination will create a leading unconventional oil producer in the U.S., with an asset base underpinned by a premium acreage position in the economic core of the Delaware Basin. The combined company, which will be named Devon Energy, will benefit from enhanced scale, improved margins, higher free cash flow and the financial strength to accelerate the return of cash to shareholders through an industry-first “fixed plus variable” dividend strategy.

The transaction is expected to close in the first quarter of 2021. Upon completion of the transaction, Devon shareholders will own approximately 57 percent of the combined company and WPX shareholders will own approximately 43 percent of the combined company on a fully diluted basis.

2024 Development Plan

Category	2023	2024 Est. Initial	Updated 2024 Guidance	%Difference (2023 vs 2024)
Total Capital Expenditure($mm)

Production Daily Equivalent(boe/d)
Production Oil(bbls/d)

 Click here for More Planned 2024 Activity