Energy Prospectus

Devon Energy Reports Second-Quarter 2014 Results

• Delivered U.S. oil production growth of 79 percent year over year
• Increased operating cash flow by 47 percent year over year
• Achieved outstanding well results in the Delaware Basin
• Completed non-core asset divestiture program with excellent results
• Reduced debt by $3.2 billion

Updating my forecast model and will post it this afternoon. - Dan

CFPS crushed my forecast: Devon generated cash flow from operations of $2.0 billion in the second quarter, a 47 percent increase compared to the second quarter of 2013. Combined with $2.8 billion of pre-tax proceeds received from the sale of the company’s Canadian conventional gas business, Devon’s total cash inflows for the quarter reached $4.8 billion.

With investment-grade credit ratings and cash balances of $1.7 billion at the end of the second quarter, Devon’s financial position remains exceptionally strong. At June 30, the company’s net debt totaled $10.7 billion, of which $1.7 billion was attributable to the consolidation of EnLink Midstream and is non-recourse to Devon.

In the second quarter, Devon repatriated $2.8 billion from the sale of its Canadian conventional gas assets. The company utilized these divestiture proceeds, cash on hand, and free cash flow generated during the quarter to reduce debt balances by $3.2 billion. Proceeds from the company’s recently announced U.S. non-core asset sale will be used to further reduce net debt in the third quarter.

Devon Energy (DVN): An updated Net Income & Cash Flow Forecast model has been posted under the Sweet 16 tab.

I have increased my Fair Value Estimate $5.95/share to $106.25. Compares to First Call's Price Target of $88.69.

Since I added Devon to the Sweet 16 on 6/1/2014, First Call has increased their price target by more than $10/share, but the stock price has moved up less than 1%. Devon is a "Core Holding" quality company and I rate it a "Screaming Buy" up to $80/share.

IMO the "Wall Street Gang" is way behind the learning curve on this one. They still think Devon is a "gasser". Now that the company's non-core asset divestiture program is complete, only about 25% of their oil & gas revenues will be from the sale of natural gas. Devon has transformed into a liquids company that has close to a decade of low risk / high potential drilling inventory in the Eagle Ford, Permian Basin, Cana Woodford (Oklahoma) and the Rockies.

A strong indication that Wall Street is way behind in updating their forecasts is the huge gap in the earnings forecasts submitted to First Call. EPS forecasts for 2015 range from $3.91 to $8.32. Mine is close to the high end of the range and I think I'm being very conservative.

We will publish an updated profile on Devon this month.