Devon Energy Corp. DVN reported third-quarter 2015 adjusted earnings per share of 76 cents, 33.3% higher than the Zacks Consensus Estimate of 57 cents. Earnings in the reported quarter were however much lower than $1.34 in the year-ago quarter.
On a GAAP basis, the company reported a loss of $8.64 per share as compared to earnings of $2.47 per share in the year-ago quarter. The difference between the operating and GAAP figures in the reported quarter was due to a non-cash, asset-impairment charge.
Revenues
Devon’s quarterly revenues of $3,601 million lagged year-ago revenues of $5,336 million by 32.5% and the Zacks Consensus Estimate of $4,035 million by 10.8%.
Highlights of the Release
In the third quarter 2015, Devon’s total production averaged 680,000 barrels of oil-equivalent (Boe) per day, exceeding the high end of the guidance range of 638,000–676,000 boe per day. Total production was up 1.3% year over year.
Total production was primarily driven by a 31% year-over-year increase in oil production from the U.S. Robust output from Devon’s Eagle Ford, Delaware Basin and Rockies assets was particularly notable. In addition, performance from its Canada heavy oil operations was impressive.
At the field level, the company is effectively controlling its costs. Field level operating costs, which include both lease operating expenses and production taxes, declined 18% year over year to $9.59 per Boe.
Total operating expenses however escalated 153.9% to $9.04 billion from $3.56 billion a year ago. Excluding asset impairment of $5.85 billion in the reported quarter, operating expenses were down 10.4% year over year. The decline was due to cost-saving initiatives taken by the company in response to the slide in oil and gas prices.
Realized Prices
Realized oil prices in the quarter were $55.94 per barrel, down 30.3% from $80.31 per barrel in the year-ago quarter. Realized prices for natural gas liquids were down 66.1% to $8.80 per barrel from $25.91 per barrel in the year-ago quarter.
Natural gas price realization was down 27.1% year over year to $2.71 per thousand cubic feet (Mcf) from $3.72 per Mcf in the year-ago quarter.
Total realized prices in the third quarter, including cash settlements, were $31.23 per boe, down 25.6% year over year, due to lower prices of all commodities sold by the company.
Financial Health
As of Sep 30, 2015, the company had a cash balance of $1,787 million, down from $1,480 million as of Dec 31, 2014.
Long-term debt as of Sep 30, 2015, was $11,400 million compared with $9,830 million as of Dec 31, 2014.
Devon’s cash flow from operating activities in third-quarter 2015 was $1,553 million compared with $1,559 million in third-quarter 2014.
Capital expenditure was $1,080 million, lower than $1,672 million in third-quarter 2014.
Guidance
Devon Energy estimates total production for the fourth quarter of 2015 in the range of 662,000–682,000 boe per day. The company raised the midpoint of the 2015 daily total production expectation by 2% to 678,000 boe from 666,500 boe.
Capital expenditure (capex) in the fourth quarter is expected in the range of $915–$1,055 million. The company lowered its 2015 capex guidance to $4,500 million from an original guidance of $5,000 million.
Devon’s 2015 E&P capital program, excluding acquisitions, is now in the range of $3.8–$4.0 billion, a $100 million decrease at both ends compared to the previous guidance.
Other Company Releases
Anadarko Petroleum Corporation APC reported a third-quarter 2015 loss of 72 cents, in line with the Zacks Consensus Estimate.
TOTAL S.A. TOT reported third-quarter 2015 operating earnings of $1.17 per share, surpassing the Zacks Consensus Estimate of 72 cents by 62.5%.
Murphy Oil Corporation MUR reported a third-quarter 2015 loss of 72 cents per share, narrower than the Zacks Consensus Estimate of a loss of 95 cents.
Our View
Devon’s focus on high-quality North American properties has led to increased oil output for five quarters in a row. We expect continued strong production from the Eagle Ford and Permian Basin assets and Canadian heavy oil operations to help it to achieve the revised oil production growth target of 31–33% year over year.
However, commodity prices continued to remain soft. Devon is doing its part to cut down on expenses, without sacrificing on production volumes. The company is on course to spend $500 million less than its original capital expenditure guidance. Despite its cost-cutting measures, weak prices will continue to undermine Devon’s performance.
Devon Energy currently has a Zacks Rank #3 (Hold).
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