- Raising full-year 2018 oil production outlook
- High-rate Boundary Raider wells set Delaware Basin record
- STACK Coyote development delivers prolific production rates
- Showboat project online 40 days ahead of plan
- G&A and interest savings to reach $175 million annually
- $1 billion share-repurchase program underway
OKLAHOMA CITY–(BUSINESS WIRE)– Devon Energy Corp. (NYSE: DVN) today reported operational and financial results for the first quarter of 2018. Also included within the release is the company’s guidance outlook for the second quarter and full-year 2018.
“Devon delivered oil production at the high end of guidance and accelerated efficiency gains across the portfolio in the first quarter,” said Dave Hager, president and CEO. “Our performance was highlighted by commencing production on the highest-rate wells in the 100-year history of the Delaware Basin and efficiencies at our STACK Showboat project, which resulted in savings of $1.5 million per well and first production 40 days ahead of plan.
“Based on our strong year-to-date results and the confidence we have in our Delaware and STACK focused capital programs, we are raising our full-year oil production outlook,” Hager said. “Importantly, we are delivering this incremental production with lower costs. We expect per-unit lease operating expense to decline 5 to 10 percent by year-end, and we are on pace to reduce G&A and interest costs by $175 million annually.”
Operating Cash Flow Increases 11 Percent
In the first quarter of 2018, Devon’s operating cash flow totaled $804 million, an 11 percent increase from the fourth quarter of 2017. Devon reported a net loss totaling $197 million, or $0.38 per diluted share, in the first quarter. The quarterly loss was attributable to a $312 million charge related to the early retirement of debt. Adjusting for this one-time charge and other items securities analysts typically exclude from their published estimates, the company’s core earnings were $108 million, or $0.20 per diluted share, in the quarter.
Delaware and STACK Driving 2018 Oil Production Guidance Higher
Overall, total production averaged 544,000 oil-equivalent barrels (Boe) per day in the first quarter. Oil accounted for the largest component of the product mix at 46 percent of total volumes.
The majority of Devon’s production was attributable to its U.S. resource plays, which averaged 413,000 Boe per day. The strongest performance in the U.S. was driven by the company’s Delaware and STACK assets, where combined oil production increased 16 percent compared to the prior quarter. This robust growth drove U.S. oil production to the top end of guidance, averaging 122,000 barrels per day for the quarter.
Based on strong year-to-date results, Devon is raising its 2018 guidance for U.S. oil production. With the production raise, the midpoint of the company’s guidance for 2018 U.S. oil production now represents an estimated growth rate of 16 percent compared to 2017, up from the previous guidance of 14 percent. The improved outlook is driven by a combination of improving well productivity in the Delaware and STACK and efficiency gains compressing cycle times with development projects.
High-Rate Boundary Raider Wells Set Delaware Basin Record
The company’s development programs across its U.S. resource plays had another strong quarter of performance. In the Delaware, new well activity was headlined by two massive Boundary Raider wells that achieved a combined 24-hour initial production rate of approximately 24,000 Boe per day (80 percent oil). These are the highest-rate wells brought online in the history of the Delaware Basin.
In the STACK, Devon commenced production on 12 high-rate wells that averaged initial 30-day rates of 3,500 Boe per day (55 percent oil). The most prolific STACK wells for the quarter belonged to the four wells from the Coyote development that delivered average 30-day rates of 4,400 Boe per day.
For additional details on well results and other information about Devon’s E&P operations, please refer to the company’s first-quarter 2018 operations report at www.devonenergy.com.
Showboat Project Online 40 Days Ahead of Plan
Devon’s upstream capital was $664 million in the first quarter, 2 percent above the guidance range. This variance was driven primarily by efficiencies achieved at the company’s STACK Showboat project, where first production was achieved approximately 40 days ahead of plan, resulting in an acceleration of capital spend.
The efficiencies at Showboat were driven by a 30 percent improvement in drilling time and the doubling of completion stages per day compared to prior activity in the area. Overall, these operating improvements delivered cost savings of $1.5 million per well at Showboat.
With the better than expected efficiencies compressing cycle times across development projects and pulling forward activity, Devon now expects its capital to trend toward the high end of its 2018 guidance of $2.2 billion to $2.4 billion. The accelerated activity due to efficiencies will benefit both the 2018 and 2019 production profile.
Upstream Revenue in U.S. Advances and EnLink Profitability Expands
The company’s upstream revenue in the U.S. totaled $1.0 billion in the first quarter, a 36 percent improvement compared to the fourth quarter of 2017. Contributing factors to the strong revenue growth were higher commodity price realizations and growth in higher-margin, light-oil production.
In Canada, upstream revenues totaled $302 million in the first quarter. The company benefitted from Western Canadian Select (WCS) basis swaps on approximately 50 percent of its estimated Canadian oil production in the first quarter, generating cash settlements of $97 million.
Devon’s midstream business generated operating profits of $277 million in the first quarter, increasing 42 percent year over year. This growth was driven by the company’s investment in EnLink Midstream. Devon has a 64 percent ownership interest in EnLink’s general partner (NYSE: ENLC) and a 23 percent interest in the limited partner (NYSE: ENLK). In aggregate, the company’s ownership in EnLink has a market value of approximately $3 billion and is projected to generate cash distributions of $270 million in 2018.
Regional Basis Swaps Provide Price Protection
The company currently has about 60 percent of its expected oil and gas production protected for the remainder of 2018. These contracts consist of collars and swaps based off the West Texas Intermediate (WTI) oil benchmark and the Henry Hub natural gas index. Additionally, Devon has entered into regional basis swaps in an effort to protect price realizations across its portfolio in the U.S. and Canada, including attractive WCS and Midland basis oil hedges. The volume and pricing details associated with the company’s hedges are provided in the tables within this release.
Per-Unit Production Expense to Improve Throughout 2018
Devon’s production expense totaled $543 million, or $11.08 per Boe, in the first quarter, in line with guidance. New revenue recognition accounting rules were implemented in the first quarter, resulting in a $62 million increase to production expense. The new accounting rules changed the way certain processing fees are presented for natural gas and natural gas liquids. These fees were historically presented as reductions to revenue but are now recorded to production expense. This change had no impact on earnings or cash flow.
With growth in high-margin and low-cost production in the Delaware and STACK, per-unit production expense is projected to decline 5 to 10 percent by year-end 2018.
G&A and Interest Savings to Reach $175 Million Annually
The company’s general and administrative expenses (G&A) totaled $226 million in the first quarter. Subsequent to quarter-end, with workforce and non-personnel related cost reduction initiatives ongoing, the company expects G&A expense to decline by 15 percent in the second quarter. On an annualized run-rate basis, the company expects G&A savings of approximately $110 million.
Net financing costs totaled $431 million in the first quarter. Excluding the $312 million charge attributable to the early retirement of debt, net financing costs for the first quarter were $119 million. With the retirement of high-coupon debt in the first quarter, the company expects to reduce net financing costs by approximately $64 million on an annual basis.
In aggregate, these G&A and interest-reduction initiatives position Devon to lower its costs by approximately $175 million annually.
Successful Tender Activity Reduces Upstream Debt
Devon’s financial position remains exceptionally strong, with investment-grade credit ratings and excellent liquidity. The company exited the first quarter with $1.4 billion of cash on hand. In March, the company successfully repurchased $807 million of debt, reducing the company’s consolidated debt to $10.0 billion. Excluding non-recourse EnLink obligations, Devon’s stand-alone net debt is $4.7 billion.
Share Repurchase Program Reaches $204 Million; Dividend Increased 33 Percent
In the first quarter, Devon announced that its board of directors authorized a $1.0 billion share-repurchase program of the company’s common stock. As of the end of April, Devon had repurchased 6.2 million shares under the program at a total cost of $204 million, with an average share purchase price of $33. Devon expects to complete the stock repurchase program by the end of 2018.
The company’s board of directors also recently approved a 33 percent increase to its quarterly common stock dividend to $0.08 per share, compared to the prior rate of $0.06 per share. The new quarterly dividend rate is effective in the second quarter of 2018.
Divestiture Program Achieves $1.1 Billion of Asset Sales
To further focus its resource-rich portfolio, Devon is targeting asset divestiture proceeds in excess of $5 billion. In March, Devon advanced this divestiture goal by announcing the sale of its Johnson County asset in the southern portion of the Barnett Shale position for $553 million. The transaction is expected to close during the second quarter.
In a separate transaction within the Barnett, the company formed a partnership with DowDupont (“Dow”) in April. Under this arrangement, Devon will monetize half its working interest across 116 gross undrilled locations for an approximate $75 million payment from Dow spread over the next five years. With this agreement, Devon will also drill and operate up to 24 wells per year, with volumes dedicated to the EnLink gathering and processing infrastructure.
Overall, these two Barnett transactions, combined with other recent asset sales, have increased total divestiture proceeds over the past year to $1.1 billion.
Pursuant to regulatory disclosure requirements, Devon is required to reconcile non-GAAP (generally accepted accounting principles) financial measures to the related GAAP information. Core earnings and core earnings per share and other items referenced within the commentary of this release are non-GAAP financial measures. Reconciliations of these and other non-GAAP measures are provided within the tables of this release.
Conference Call Webcast and Supplemental Earnings Materials
Also provided with today’s release is the company’s detailed operations report that is available on the company’s website at www.devonenergy.com. The company’s first-quarter conference call will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday, May 2, 2018, and will serve primarily as a forum for analyst and investor questions and answers.
This release includes “forward-looking statements” as defined by the Securities and Exchange Commission (SEC). Such statements include those concerning strategic plans, expectations and objectives for future operations, and are often identified by use of the words “expects,” “believes,” “will,” “would,” “could,” “forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding our business and operations are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to: the volatility of oil, gas and NGL prices; uncertainties inherent in estimating oil, gas and NGL reserves; the extent to which we are successful in acquiring and discovering additional reserves; the uncertainties, costs and risks involved in oil and gas operations; regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters; risks related to our hedging activities; counterparty credit risks; risks relating to our indebtedness; cyberattack risks; our limited control over third parties who operate our oil and gas properties; midstream capacity constraints and potential interruptions in production; the extent to which insurance covers any losses we may experience; competition for leases, materials, people and capital; our ability to successfully complete mergers, acquisitions and divestitures; and any of the other risks and uncertainties identified in our Form 10-K and our other filings with the SEC. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this release are made as of the date of this release, even if subsequently made available by Devon on its website or otherwise. Devon does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise. The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC’s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This release may contain certain terms, such as resource potential, potential locations, risked and unrisked locations, estimated ultimate recovery (or EUR), exploration target size and other similar terms. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized.The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10-K, available at www.devonenergy.com . You can also obtain this form from the SEC by calling 1-800-SEC-0330 or from the SEC’s website at www.sec.gov .
About Devon Energy
Devon Energy is a leading independent energy company engaged in finding and producing oil and natural gas. Based in Oklahoma City and included in the S&P 500, Devon operates in several of the most prolific oil and natural gas plays in the U.S. and Canada with an emphasis on achieving strong returns and capital-efficient cash flow growth. For more information, please visit www.devonenergy.com.
Devon Energy Corp.
Scott Coody, 405-552-4735
Chris Carr, 405-228-2496
John Porretto, 405-228-7506
Source: Devon Energy Corp.