Quarterly / Earnings Reports | Third Quarter (3Q) Update

Devon's Permian, Powder River Output Jumps in Q3; Gets Nearly 20% Oilier YOY

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   |    Tuesday,November 05,2019

Updated Guidance

Fourth-quarter 2019 oil production from retained assets is forecasted to average 154,000 to 160,000 barrels per day, a 6 percent sequential quarter improvement at the midpoint. The company’s updated guidance represents an estimated oil growth rate range of 20 percent to 21 percent for the full-year 2019 compared to 2018, a 550-basis point improvement compared to original guidance expectations.

Upstream capital from retained assets for the full-year 2019 remains unchanged at $1.83 billion to $1.87 billion. Fourth-quarter upstream capital from retained assets is expected to range from $375 million to $420 million. The reduction in capital spending from the third quarter is driven by timing of completions in the Delaware Basin and Eagle Ford and lower activity in the STACK play.

The company is also lowering its 2019 expense outlook for G&A to a range of $460 million to $470 million and financing costs to a range of $245 million to $255 million. This represents a 17 percent and 22 percent improvement, respectively, compared to original guidance expectations.

Divestiture Update

Subsequent to quarter end, the company entered into an agreement to form a midstream partnership in the Delaware Basin with QL Capital Partners, LP (“QLCP”). As part of this transaction, Devon will contribute gathering system and compression assets in the Cotton Draw area to the partnership in exchange for a $100 million cash distribution funded by QLCP. Devon will continue to operate the assets pursuant to the management services agreement. QLCP has also committed $40 million of expansion capital to the partnership to fund the build out of the Cotton Draw midstream assets over the next several years.

Devon continued to advance the sale process for its Barnett Shale assets in north Texas. The data room was opened in the third quarter and multiple bids were received in September. Negotiations with advantaged bidders are progressing. The company’s sale process for its enhanced oil recovery project in the Rockies is also ongoing.

Financial Highlights

For the third quarter, Devon’s upstream revenues totaled $1.1 billion. The company’s realized price during the period, including commodity hedges, was $27.73 per Boe, compared with the prior quarter of $27.84 per Boe. This lower price realization reflects lower crude, natural gas, and natural gas liquids pricing, offset by growth in higher-margin oil production and cash settlements on commodity hedges.

Production expense averaged $9.37 per Boe in the third quarter. Including costs reclassified to discontinued operations, production costs declined 19 percent compared to the year-ago quarter. The improved result was driven by lower lease operating expenses across Devon’s retained U.S. asset portfolio, decreased production taxes and the exit of higher-cost Canadian assets from Devon’s portfolio.

Corporate costs also declined during the quarter. General and administrative (G&A) expenses totaled $107 million in the third quarter. Including costs reclassified to discontinued operations, Devon’s G&A expense improved 27 percent year-over-year. The lower G&A costs were primarily driven by reduced personnel expense. Interest costs (including discontinued operations) were reduced $20 million year-over-year due to the company’s ongoing debt-reduction program.

Operating cash flow totaled $597 million from continuing operations, a 22 percent increase compared to the previous quarter despite lower commodity prices. This level of cash flow funded third-quarter capital requirements of $541 million, resulting in $56 million of free cash flow.

Devon continues to maintain a strong balance sheet, with investment-grade credit ratings and excellent liquidity. The company’s $4.7 billion liquidity position includes $1.7 billion of cash (inclusive of restricted cash) and an undrawn $3 billion unsecured credit facility. During the quarter, Devon redeemed $1.5 billion of debt with cash on hand. At Sept. 30, 2019, the company’s total debt outstanding was $4.3 billion, with no maturities until late 2025.

Through Oct. 31, 2019, Devon had repurchased 147 million shares, or approximately 28 percent of outstanding shares since 2018, at a total cost of $4.8 billion, under its $5 billion authorization. In the third quarter, the company completed $550 million of share repurchases and returned $35 million of additional capital to shareholders through its quarterly dividend.

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