Devon Energy (DVN) Q2 Results - Aug 1

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Devon Energy (DVN) Q2 Results - Aug 1

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Another outstanding quarter from a world class team. My pre-release valuation of $89/share is too low.

OKLAHOMA CITY – Aug. 1, 2022 – Devon Energy Corp. (NYSE: DVN) today reported financial and operational results for the
second-quarter 2022. Supplemental financial tables and forward-looking guidance are available on the company’s website at
www.devonenergy.com.

KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS
• Fixed-plus-variable dividend increased by 22 percent to record high of $1.55 per share < Annualized yield of ~11%
• Share-repurchase program retired 4 percent of outstanding shares since inception
• Delaware Basin drove second-quarter results that were favorable to guidance on production and capital
• Operating cash flow more than doubled year over year and free cash flow reached the highest level in Devon history
• Disciplined capital allocation framework moderated reinvestment rates to 22 percent of cash flow
• Balance sheet strengthened with cash balances increasing by $832 million to a total of $3.5 billion
• Resource capture transactions added high-return inventory in Williston and Delaware Basin

CEO PERSPECTIVE
“The second quarter saw our business continue to strengthen and build momentum as we delivered systematic execution across the
financial, operational and strategic tenets of our cash-return business model,” said Rick Muncrief, president and CEO.
“This success was showcased by production from our Delaware-focused program that exceeded guidance expectations, our
streamlined cost structure captured the full benefit of higher commodity prices and we returned record-setting amounts of cash to
shareholders. In addition, we took important steps to strengthen the quality and depth of our asset portfolio.
“As a result of the strong financial and operational performance achieved year to date, we have updated our full-year 2022 guidance,”
Muncrief commented. “This improved outlook raises production targets, increases free cash flow projections and enhances our ability
to accelerate the return of capital to shareholders.”

FINANCIAL RESULTS
Devon reported net earnings of $1.9 billion, or $2.93 per diluted share, in the second quarter of 2022. Adjusting for items analysts
typically exclude from estimates, the company’s core earnings were $1.7 billion, or $2.59 per diluted share. < Compares to my forecast of $1,636 million net income ($2.48 per share).
Operating cash flow totaled $2.7 billion in the quarter, a more than two-fold increase versus the year-ago period. With capital
reinvestment rates at 22 percent of cash flow, Devon generated $2.1 billion of free cash flow in the quarter. This represents the
highest quarterly amount of free cash flow in the company’s 51-year history. < Operating cash flow compares to my forecast of $2,461 million.
The company’s investment-grade financial position also continued to strengthen in the second quarter with cash balances increasing
by $832 million to a total of $3.5 billion. Devon exited the quarter with an outstanding debt balance of $6.5 billion and a net debt-to-EBITDAX ratio of only 0.4 times. < SUPER STRONG BALANCE SHEET and AMAZING FREE CASH FLOW.

RETURN OF CAPITAL
Based on the second-quarter financial performance, Devon declared a fixed-plus-variable dividend of $1.55 per share, an increase of
22 percent from the previous quarter. This dividend payout represents an annualized yield of 11 percent based on the company’s
share price as of July 29, 2022. As of the end of July, Devon repurchased 23.9 million shares, or 4 percent of its outstanding shares, at
a total cost of $1.2 billion.

OPERATING RESULTS
Production for the second quarter averaged 616,000 oil-equivalent barrels (Boe) per day, an increase of 7 percent from the first
quarter of 2022. Oil production accounted for the largest component of the company’s product mix at 49 percent of total volumes. < Compares to my Q2 production forecast of 587,500 Boepd (49.4% oil).
Upstream capital spending was 5 percent below guidance, totaling $513 million in the second quarter. Devon’s capital program
averaged 19 operated drilling rigs and 67 gross operated wells were placed online during the quarter.
Production costs, including taxes, averaged $13.01 per Boe. Devon’s low operating cost structure, coupled with the benefits of an oil-weighted production mix, expanded field-level cash margins to $60.12 per Boe in the quarter. This represents a 22 percent
improvement from the first quarter of 2022.
The company’s administrative and financing costs improved by 9 percent year-over-year, excluding the early retirement of debt.
These cost reductions were achieved through merger-related synergies and reduced interest expense.
Dan Steffens
Energy Prospectus Group
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