By a News Reporter-Staff News Editor at Energy Weekly News -- Devon Energy Corporation (NYSE:DVN) reported net earnings of $207 million or $0.51 per common share ($0.51 per diluted share) for the quarter ended December 31, 2013. This compares with a fourth-quarter 2012 net loss of $357 million or $0.89 per common share ($0.89 per diluted share).
Adjusting for items securities analysts typically exclude from their published estimates, the company earned $447 million or $1.10 per diluted share in the fourth quarter. This represents a 49 percent increase in adjusted earnings compared to the fourth quarter of 2012.
Operating cash flow in the fourth quarter of 2013 totaled $1.4 billion, a 26 percent increase compared to the year-ago period. For the year ended December 31, 2013, Devon generated operating cash flow of $5.4 billion. Including $419 million of cash received from asset sales, the company's total cash inflows reached $5.9 billion for 2013.
"2013 was a year of strong execution and exciting change for Devon," said John Richels, president and chief executive officer. "Our drilling programs not only drove impressive oil production growth, but also expanded margins and improved operating cash flow. Additionally, we high-graded our portfolio through an accretive Eagle Ford Shale acquisition, an innovative midstream combination, and initiated an asset divestiture program. These actions provide a platform for Devon to achieve attractive high-margin growth in 2014 and for many years to come." Key Operating Highlights Permian Basin - Production averaged a record 86,000 oil-equivalent barrels (Boe) per day in the fourth quarter, a 29 percent increase compared to the fourth quarter of 2012. Light oil production accounted for approximately 60 percent of Devon's total Permian production.
The Bone Spring oil play in the Delaware Basin was a significant contributor to the company's growth in the Permian. Devon added 21 new Bone Spring wells to production in the fourth quarter, with initial 30-day rates averaging 800 Boe per day, of which 70 percent was light oil. These outstanding initial production rates exceeded the company's Bone Spring type curve by about 40 percent.
Also in the Delaware Basin, Devon commenced production on its first horizontal Wolfcamp well in Ward County, Texas. Initial 30-day production from the Martinsville 120-4H averaged 950 Boe per day, including 800 barrels of light oil per day. The company has identified more than 100,000 net acres prospective for the Wolfcamp within its Delaware Basin position and will continue to derisk this emerging oil opportunity in 2014.
In the Southern Midland Basin, Devon delivered strong results from its oil development program in the Wolfcamp Shale. During the fourth quarter, the company brought 24 Wolfcamp Shale wells online with initial 30-day rates averaging 410 Boe per day. Canadian Thermal Oil - Gross production from Devon's Jackfish 1 and Jackfish 2 thermal oil projects averaged 58,000 barrels of oil per day in the fourth quarter, or 53,000 barrels per day after royalties. This represents a 16 percent increase in net production compared to the third quarter of 2013. The growth in fourth-quarter production was attributable to the resumption of operations at Jackfish 2 after scheduled maintenance downtime during the third quarter.
Construction of the company's Jackfish 3 thermal oil project is now nearly complete. Plant startup at Jackfish 3 is expected in the third quarter of this year. At peak production, Devon's three 100 percent-owned Jackfish projects are expected to generate nearly $1 billion of free cash flow annually for the company. Barnett Shale - Net production averaged 1.4 billion cubic feet of natural gas equivalent per day in 2013. Barnett liquids production increased to an average of 57,000 barrels per day in 2013, a 17 percent increase compared to 2012. Anadarko Basin - Fourth-quarter Anadarko Basin production averaged a record 85,000 Boe per day. Growth from Devon's Cana-Woodford Shale and Granite Wash plays drove a 10 percent year-over-year increase in net production. With drilling focused in the most liquids-prone acreage, oil and natural gas liquids production increased to more than 40 percent of total production in the Anadarko Basin. Mississippian-Woodford Trend - Net production from Devon's emerging Mississippian-Woodford Trend averaged 16,000 Boe per day in December, representing a 47 percent increase from the September average and exceeding the company's projected exit rate. Record Oil Production Driven by Permian Basin Devon delivered strong oil production growth in the fourth quarter of 2013. Companywide oil production set a new quarterly record averaging 177,000 barrels per day, exceeding the top end of the company's guidance range. This represents a 17 percent increase in oil production compared to the fourth quarter of 2012 and a 7 percent increase over the third quarter of 2013. Led by the Permian Basin, the most significant growth came from the company's U.S. operations, where oil production increased 32 percent year over year. Total production increased to an average of 696,000 Boe per day in the fourth quarter of 2013, surpassing the midpoint of the company's previous forecast by 6,000 Boe per day.
In November, the company announced an initiative to monetize non-core assets in both the U.S. and Canada, sharpening its focus on high-growth retained properties. The assets identified for divestiture averaged 144,000 Boe per day in the fourth quarter, of which almost 80 percent was natural gas. Excluding production associated with these non-core assets, top-line production in the fourth quarter from Devon's retained asset base increased 7 percent compared to the fourth quarter of 2012. Reconciliations of retained and non-core asset production are provided later in this release. Upstream Revenue Increases 19 Percent; Cash Margins Expand Revenue from oil, natural gas and natural gas liquids sales totaled $8.5 billion in 2013, a 19 percent increase compared to 2012. The significant growth in revenue was attributable to higher oil production and improved natural gas realizations. In 2013, oil sales accounted for more than 50 percent of Devon's total upstream revenues.
Devon's marketing and midstream operating profit reached $513 million in 2013. This result represents a 25 percent increase compared to the previous year. The increase in operating profit was attributable to higher natural gas prices and strong cost management.
The company's pre-tax cash costs totaled $14.96 per Boe in 2013, a 4 percent increase compared to 2012. The higher unit cost is attributable to Devon's dramatic increase in oil production. In general, oil wells have higher operating costs than gas wells, but also have higher margins in the current commodity price environment. In the fourth quarter, the company's cash margin per Boe increased 15 percent year over year, reflecting the benefits of the increase in higher-margin oil production. Foreign Cash Repatriated; Balance Sheet Remains Strong During the fourth quarter, Devon repatriated $2.3 billion of foreign cash to the U.S. For the full-year 2013, the company repatriated $4.3 billion of foreign cash to the U.S. at an estimated effective tax rate of 4 percent. At December 31, 2013, the company's cash balances totaled $6.1 billion, and its investment-grade balance sheet had a net debt to adjusted capitalization ratio of only 23 percent.
In December, Devon issued $2.25 billion of senior notes through a combination of two-, three- and five-year offerings and entered into an undrawn $2 billion senior term loan facility. Proceeds from the senior notes, the term loan facility, and a portion of the company's cash on hand will fund Devon's recently announced Eagle Ford acquisition. Oil Reserves Climb to Record Levels At December 31, 2013, Devon increased its proved oil reserves to a record 837 million barrels. During the year, the company's oil-focused drilling program added 112 million barrels of oil reserves through successful drilling (extensions, discoveries and revisions other than price). This represents a replacement rate of approximately 180 percent of the oil produced during 2013.
In aggregate, Devon's estimated proved reserves of oil, natural gas and natural gas liquids were 3.0 billion oil-equivalent barrels at year end. Extensions and discoveries through successful drilling, combined with price revisions related to higher natural gas prices, increased proved reserves by 355 million Boe compared to year-end 2012. Divestitures and revisions other than price decreased proved reserves by 103 million Boe in 2013. Revisions other than price were primarily attributable to proved undeveloped gas-weighted locations no longer expected to be drilled given the commodity price environment.
Overall, the company's reserve life index (proved reserves divided by annual production) remained at approximately 12 years, and its proved undeveloped reserves accounted for only 24 percent of proved reserves. Proved reserves associated with assets identified for divestiture totaled 381 million Boe at December 31, 2013, of which approximately 70 percent were natural gas. Eagle Ford and EnLink Midstream Update In November, Devon announced the acquisition of GeoSouthern Energy's assets in the Eagle Ford oil play. The acquired Eagle Ford acreage includes 82,000 net acres located in DeWitt and Lavaca counties. This acreage is located in the best part of the Eagle Ford, consistently yielding some of the highest initial production rates and estimated ultimate recoveries in the entire play.
Keywords for this news article include: Oil & Gas, Natural Gas, Oil Production, Energy Companies, Devon Energy Corporation.
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