Energy Prospectus

I will be updating my forecast/valuation model later today for Devon. Higher dividend should draw more attention. My valuation will increase.

Stifel: Devon Energy Corporation (DVN, $20.87, Buy; Target $34.00) -
Declares the E&P industry's first variable dividend and improving breakeven economics - Derrick Whitfield
We view this release as slightly positive. The positives include: i) a total equivalent and oil production beat, ii) the declaration of the industry's first variable dividend, iii) better than expected production guidance (2.3% above consensus on oil), and iv) continued operational excellence in the Delaware Basin. The only negatives were a quarterly capex miss and higher than expected 2021 capex. Net-net, Devon's strong financial and operational results should outweigh a wide capex guidance range for 2021 as we expect Devon to outperform the midpoint of guidance.

KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS
• Board declares industry-first variable dividend of $0.19 per share based on fourth-quarter results
• Variable dividend is in addition to previously declared fixed quarterly dividend of $0.11 per share
• Pro forma oil production exceeded guidance by 5 percent in the fourth quarter
• Well productivity and capital efficiency gains in the Delaware Basin headlined operating results
• Production expense improved 14 percent year over year in the fourth quarter
• Operating cash flow reached $773 million for the pro forma company in the quarter
• Free cash flow generation accelerated to $263 million in the quarter for the pro forma company
• Raising full-year 2021 operating and financial outlook

Neal Dingmann at Truist Financial increased his price target by $11 to $30.

I have updated my forecast/valuation model for Devon and it will be posted to the EPG website this afternoon.

Devon beat my Q4 forecast and they provided detailed production and line-by-line expense guidance for 2021. So, I have a lot more confidence in my 2021 and my 2022 forecasts.
I believe they are being conservative in all of their guidance.
My valuation increases from $22 to $33 per share using realized commodity prices for 2021 of $52/bbl for oil, $2.45/mcf of natural gas and $16.25/bbl for NGLs. "Realized prices" include cash settlements on their hedges and regional price differentials, which have significantly improved YOY.

Devon Energy Corporation (DVN, $21.73, Buy) - First to Flash
its Variable Dividend Card Has Its Benefits - Devon put its money
where its mouth is by announcing the industry's first variable
dividend after paying out 48% of pro forma excess FCF that
resonated well with investors we spoke to. We believe the DVN/
WPX combination should continue to result in strong upside
throughout this year into 2022 as efficient operations are applied
to the new massive acreage with pre-cautionary steps in place
such as federal permits, abundant rightaways/takeaway and
other processes to ensure higher returns. While not immediately
necessary, we believe the company could pull off an accretive
deal soon. - Neal Dingmann at Truist Financial 2/18/2021

Piper Sandler 2-19-2019 update on Devon Energy (DVN)

We reiterate our Overweight rating and raise our PT to $27 (from $25) following 4Q/FY20
results and guidance that drives our increase in 2021 FCF estimates. Both DVN and WPX
delivered a strong finish to 2020 with 4Q20 oil production of 305 mbbls/d (5% above the
midpoint of pro-forma 4Q20 guidance), and 2021 oil and total production guidance was
4%/8% ahead of our prior estimates, while capex guidance was ~2% ahead. While we
had anticipated some shift in allocation to legacy DVN Delaware assets in 2021, we are
impressed that production guidance does not imbed a shift with Delaware capital being
fairly evenly split. With the inaugural variable dividend ($0.19/sh) coming before the official
close of the WPX/DVN transaction, we estimate that DVN could potential pay up $850mm
in further variable based on max payout (50% of FCF in excess of fixed dividend) which
would equate to an 8.2% dividend yield.

• 2021 Guidance Reinforces FCF Outlook. DVN offered a pretty wide initial guidance
range, expecting to execute a $1.72-1.98bn capital budget with 80% of upstream capital
($1.6-1.8bn) directed toward the Delaware Basin. The company also guided 2021 oil and
total production 280-300 mbbls/d and 543-580 mboe/d, which was 4%/8% ahead of our
prior estimates, while capex at the midpoint was 2% ahead of prior estimate. Adjusting
our capex and production estimates to roughly the midpoint of guidance, our new 2021
FCF projection of $1,515mm before a 1Q21 cash restructuring charge of ~$100mm is up
from our previous estimate of $1,495mm (assuming $49.40/bbl WTI). At the current strip
(~$58/bbl WTI), our FCF estimate increase to ~$2.0bn before restructuring and equates
to a 10.7% FCF/EV yield.

• Delivering on Shareholder Return. DVN announced its inaugural variable cash
dividend payment of $0.19/sh with 4Q20 results, which along with the fixed dividend of
$0.11/sh equates to a 5.8% annualized dividend yield. The company delivered on the
shareholder return promise ahead of the merger close, and the operational momentum
the company carried into 2021 would indicate the payouts could increase. We estimate
at the current strip, the company could execute on its debt reduction goals, payout ~
$850mm in variable cash dividend, $296mm of fixed dividends, and exit the year with
leverage at 1.0x and have $1.5bn of cash on the balance sheet. Looking out to 2022,
the variable payout at the strip would be $720mm and DVN would exit 2022 with $2.3bn
of cash and leverage of 0.9x. The potential strip variable and fixed dividend payments
equate to a 2021/2022 dividend yield of 8.2% and 7.3%, respectively