Devon Energy Q2 Results

[dan_s]

Updating my forecast model after I listen to their Q2 conference call.

Highlights
• Exceeded production expectations in U.S. resource plays
• Raised 2016 production guidance for retained assets by 3 percent
• Reduced lease operating expenses 26 percent year over year
• Improved operating and G&A expense outlook
• Completed asset divestiture program with proceeds totaling $3.2 billion
• Increased E&P capital investment by $200 million in 2016

“Devon Energy’s strategy of operating in North America’s best resource plays, coupled with a focus on delivering best-in-class execution, led to another quarter of excellent operational results,” said Dave Hager, president and CEO. “Production from our U.S. resource plays once again exceeded guidance expectations and we were able to deliver this outperformance with dramatically lower costs. With the cost savings achieved year to date, we are now on pace to reduce operating and G&A expenses by nearly $1 billion in 2016.

“In addition to our strong operating performance, we were able to significantly improve our financial strength over the past several months with the timely completion of our non-core asset divestiture program,” Hager said. “Total divestitures reached $3.2 billion and surpassed the top end of our $2 billion to $3 billion guidance range. The majority of the sales proceeds will be utilized to reduce debt and position us to further accelerate investment in our best-in-class U.S. resource plays, led by the STACK and Delaware Basin.”

The BEST NEWS

Devon exited the second quarter with $1.7 billion of cash on hand. Pro-forma for the recent asset sales, cash balances will increase to $4.6 billion and the Company had no borrowings on its $3 billion senior credit facility.

The Company’s consolidated debt was $12.7 billion at the end of the second quarter. Adjusted for asset sales, Devon’s net debt, which excludes non-recourse EnLink obligations, declines to $4.7 billion. The Company’s ownership in EnLink is valued at greater than $3 billion and is expected to generate cash distributions of $270 million in 2016.

[dan_s]

I have updated my forecast model for Devon Energy and it will be posted to the EPG website later today.

Devon is the most complex company in the Sweet 16 and it is also "in transition", with large asset sales and a lot of moving parts. The good news is that this company's outlook heading into 2017 is going to look very good to Wall Street.

I have raised my valuation by $5.00/share to $61.00. This compares to First Call's price target of $43.47. I believe when other analyst have time to digest their Q2 results and revised guidance, Devon will get several upgrades.