DVN is one of my Top Picks in our High Yield Income Portfolio.
Devon Energy Corp. (NYSE: DVN) announced it will report fourth-quarter and full-year 2022 results on Tuesday, Feb. 14, after the close of U.S. financial markets. The earnings release and presentation for the fourth-quarter and full-year 2022 results will be available on the company’s website at www.devonenergy.com.
On Wednesday, Feb. 15, the company will hold a conference call at 10:00 a.m. Central Time (11:00 a.m. Eastern Time), which will consist primarily of answers to questions from analysts and investors. A webcast link to the conference call will be provided on Devon’s website at www.devonenergy.com. A replay will be available on the website following the call.
ABOUT DEVON ENERGY
Devon Energy is a leading oil and gas producer in the U.S. with a premier multi-basin portfolio headlined by a world-class acreage position in the Delaware Basin. Devon’s disciplined cash-return business model is designed to achieve strong returns, generate free cash flow and return capital to shareholders, while focusing on safe and sustainable operations. For more information, please visit www.devonenergy.com.
Devon (DVN) for High Yield + Growth - Feb 13
Devon (DVN) for High Yield + Growth - Feb 13
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Devon (DVN) for High Yield + Growth - Feb 13
Notes for Neal Dingmann at Truist Financial. His price target for DVN is $80.00
Devon Energy Corporation (DVN)
Solid 4Q Despite Slight Slowdown with Exciting 2023 Internal and Potential External Activity
We forecasted Devon to have generated over $1.1B FCF last quarter, despite a bit of weather
as most operators experienced, and a slightly slower completion pace though still enabling
DVN to once again, generate solid shareholder return. While the company maintained one
of the more stable drilling schedules, frac activity was lower than normal, likely resulting in
incremental DUCs that we forecast will benefit this year. As a result, we reiterate our $80 PT.
Our detailed operational analysis suggests the DE to remain the key to overall upside, though
solid Eagle Ford and Bakken upside following 2022 deals, along with potential incremental
M&A could boost the total.
Delaware Basin Still the Key Driver
We continue to forecast the majority of total rigs to be focused on DE operations though we
estimate slightly less activity in the play the latter half of this year with potentially a couple
rigs shifting to the Eagle Ford. However, we forecast at least 4 frac spreads to continue
throughout the year in the DE to complete new wells and incremental DUCs, along with a
likely more active completion program in the Eagle Ford and Bakken. We estimate at least
350 wells (gross) drilled this year with nearly 66% of those in the DE Basin.
Anticipating Solid Bakken and Eagle Ford Integration
We continue to adjust the RimRock (Private) and Validus (Private) additions with both
ensuring that the Bakken and Eagle Ford remain significant parts of overall activity and a
nice boost to 2023 production, given the rig addition in the Bakken and two rigs for the Eagle
Ford assets as seen last month. We continue to forecast slightly below average inflationary
pressures for DVN despite upcoming contract renewals among its service providers. While
there’s belief that inflation has slowed, DVN’s portfolio, most notably its Delaware assets,
are acutely exposed to labor and frac equipment constraints heading into next year.
Adjusting Estimates and Reiterating $80 Price Target
We forecast nearly 10% production growth this year, largely driven by the incremental Eagle
Ford and Bakken activity given the new assets. We believe the company can deliver on
its shareholder return planning, thus ensuring continued solid dividends and buybacks. We
anticipate hearing an update on a pre-FID LNG export partnership with Delfin LNG (Private)
and their floating LNG export terminal. DVN would be provided 1MTPA of liquefaction
capacity, with the option to add an additional 1MTPA. FID was expected by year-end 2022,
and the project offers exceptional exposure for DVN to realize international gas pricing
though nothing yet baked into our model for the upside. We have adjusted our model for
actual 4Q22 prices along with updated costs and likely volumes. We reiterate out $80 price
target derived from two equally weighted methodologies with the first being our ’23 EV/
EBITDAX multiple of 5.5x (5.5x prior and 5.3x peer group average) applied to our 2023E
EBITDAX estimate of $10,403MM ($10,413MM prior and $9,349MM) and the second being
a FCF/EV Yield assumption of 10.0%
Devon Energy Corporation (DVN)
Solid 4Q Despite Slight Slowdown with Exciting 2023 Internal and Potential External Activity
We forecasted Devon to have generated over $1.1B FCF last quarter, despite a bit of weather
as most operators experienced, and a slightly slower completion pace though still enabling
DVN to once again, generate solid shareholder return. While the company maintained one
of the more stable drilling schedules, frac activity was lower than normal, likely resulting in
incremental DUCs that we forecast will benefit this year. As a result, we reiterate our $80 PT.
Our detailed operational analysis suggests the DE to remain the key to overall upside, though
solid Eagle Ford and Bakken upside following 2022 deals, along with potential incremental
M&A could boost the total.
Delaware Basin Still the Key Driver
We continue to forecast the majority of total rigs to be focused on DE operations though we
estimate slightly less activity in the play the latter half of this year with potentially a couple
rigs shifting to the Eagle Ford. However, we forecast at least 4 frac spreads to continue
throughout the year in the DE to complete new wells and incremental DUCs, along with a
likely more active completion program in the Eagle Ford and Bakken. We estimate at least
350 wells (gross) drilled this year with nearly 66% of those in the DE Basin.
Anticipating Solid Bakken and Eagle Ford Integration
We continue to adjust the RimRock (Private) and Validus (Private) additions with both
ensuring that the Bakken and Eagle Ford remain significant parts of overall activity and a
nice boost to 2023 production, given the rig addition in the Bakken and two rigs for the Eagle
Ford assets as seen last month. We continue to forecast slightly below average inflationary
pressures for DVN despite upcoming contract renewals among its service providers. While
there’s belief that inflation has slowed, DVN’s portfolio, most notably its Delaware assets,
are acutely exposed to labor and frac equipment constraints heading into next year.
Adjusting Estimates and Reiterating $80 Price Target
We forecast nearly 10% production growth this year, largely driven by the incremental Eagle
Ford and Bakken activity given the new assets. We believe the company can deliver on
its shareholder return planning, thus ensuring continued solid dividends and buybacks. We
anticipate hearing an update on a pre-FID LNG export partnership with Delfin LNG (Private)
and their floating LNG export terminal. DVN would be provided 1MTPA of liquefaction
capacity, with the option to add an additional 1MTPA. FID was expected by year-end 2022,
and the project offers exceptional exposure for DVN to realize international gas pricing
though nothing yet baked into our model for the upside. We have adjusted our model for
actual 4Q22 prices along with updated costs and likely volumes. We reiterate out $80 price
target derived from two equally weighted methodologies with the first being our ’23 EV/
EBITDAX multiple of 5.5x (5.5x prior and 5.3x peer group average) applied to our 2023E
EBITDAX estimate of $10,403MM ($10,413MM prior and $9,349MM) and the second being
a FCF/EV Yield assumption of 10.0%
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group