Devon Energy Forecast
Posted: Wed Feb 15, 2017 10:27 am
Devon Energy is a complex company and more difficult to forecast than the majority of the Sweet 16. 2016 was a "transition year" with lots of asset sales to shore up their balance sheet. If Q4 2016 is a good indication of what's coming in 2017, then this is going to be a very good year for DVN. STACK will be the "engine of growth". Nice that it is near their OKC headquarters.
The majority of the company’s production was attributable to its U.S. resource plays, which averaged 396,000 Boe per day during the fourth quarter (73.5% of total DVN production). Production within the U.S. during 2016 benefited from drilling activity that achieved the best new well productivity in Devon’s 45-year history. Led by results from the STACK, Delaware Basin and Eagle Ford assets, the company’s initial 90-day production rates in the U.S. increased for the fourth consecutive year, advancing more than 300 percent from 2012.
The substantial improvement in well productivity was driven by activity focused in top resource plays, improved subsurface reservoir characterization, leading-edge completion designs and improvements in lateral placement.
On Oct. 6, 2016, the company closed on the sale of its 50 percent interest in the Access Pipeline for USD $1.1 billion. This accretive transaction officially completed Devon’s $3.2 billion non-core asset divestiture program.
The majority of divestiture proceeds were utilized to retire $2.5 billion of debt through tender offerings and repayments in the second half of 2016. As a result of the debt-reduction efforts, the company expects its recurring, go-forward financing costs to decline by around $120 million annually, with no significant debt maturities until mid-2021. Devon exited the fourth quarter with investment-grade credit ratings and significant liquidity, which consisted of $2 billion of cash on hand and an undrawn credit facility of $3 billion.
In addition to an investment-grade balance sheet, Devon’s financial position is bolstered by a significantly increased commodity hedging position in 2017. The company currently has approximately 50 percent of its estimated oil and gas production hedged in the upcoming year and will continue to build out its hedging position in the future.
In 2017, Devon expects to further accelerate activity in its U.S. resource plays to as many as 20 operated rigs by year end. With this level of planned activity, the company expects to invest between $2.0 billion and $2.3 billion of E&P capital in 2017, with nearly 90 percent of the capital devoted to U.S. resource plays.
Devon’s upstream capital plans are expected to drive 13 to 17 percent oil production growth in the U.S. during 2017 compared to the fourth quarter of 2016, which marks the low point of Devon’s production profile. This resumption of growth in high-margin production will begin in the first quarter of 2017. The operational momentum created by accelerated drilling activity in the STACK and Delaware Basin in the upcoming year is expected to advance light-oil production in the U.S. by approximately 20 percent in 2018 compared to 2017. This rapid growth in high-margin production, combined with a significantly improved cost structure, positions Devon to deliver peer-leading cash flow expansion at today’s market prices.
The majority of the company’s production was attributable to its U.S. resource plays, which averaged 396,000 Boe per day during the fourth quarter (73.5% of total DVN production). Production within the U.S. during 2016 benefited from drilling activity that achieved the best new well productivity in Devon’s 45-year history. Led by results from the STACK, Delaware Basin and Eagle Ford assets, the company’s initial 90-day production rates in the U.S. increased for the fourth consecutive year, advancing more than 300 percent from 2012.
The substantial improvement in well productivity was driven by activity focused in top resource plays, improved subsurface reservoir characterization, leading-edge completion designs and improvements in lateral placement.
On Oct. 6, 2016, the company closed on the sale of its 50 percent interest in the Access Pipeline for USD $1.1 billion. This accretive transaction officially completed Devon’s $3.2 billion non-core asset divestiture program.
The majority of divestiture proceeds were utilized to retire $2.5 billion of debt through tender offerings and repayments in the second half of 2016. As a result of the debt-reduction efforts, the company expects its recurring, go-forward financing costs to decline by around $120 million annually, with no significant debt maturities until mid-2021. Devon exited the fourth quarter with investment-grade credit ratings and significant liquidity, which consisted of $2 billion of cash on hand and an undrawn credit facility of $3 billion.
In addition to an investment-grade balance sheet, Devon’s financial position is bolstered by a significantly increased commodity hedging position in 2017. The company currently has approximately 50 percent of its estimated oil and gas production hedged in the upcoming year and will continue to build out its hedging position in the future.
In 2017, Devon expects to further accelerate activity in its U.S. resource plays to as many as 20 operated rigs by year end. With this level of planned activity, the company expects to invest between $2.0 billion and $2.3 billion of E&P capital in 2017, with nearly 90 percent of the capital devoted to U.S. resource plays.
Devon’s upstream capital plans are expected to drive 13 to 17 percent oil production growth in the U.S. during 2017 compared to the fourth quarter of 2016, which marks the low point of Devon’s production profile. This resumption of growth in high-margin production will begin in the first quarter of 2017. The operational momentum created by accelerated drilling activity in the STACK and Delaware Basin in the upcoming year is expected to advance light-oil production in the U.S. by approximately 20 percent in 2018 compared to 2017. This rapid growth in high-margin production, combined with a significantly improved cost structure, positions Devon to deliver peer-leading cash flow expansion at today’s market prices.