News Column

Devon Energy Reports Second-Quarter 2014 Results

August 22, 2014



By a News Reporter-Staff News Editor at Energy Weekly News -- Devon Energy Corporation (NYSE:DVN) reported net earnings of $675 million or $1.65 per common share ($1.64 per diluted share) for the quarter ended June 30, 2014. This compares with second-quarter 2013 net earnings of $683 million or $1.69 per common share ($1.68 per diluted share).

Adjusting for items securities analysts typically exclude from their published estimates, the company earned $574 million or $1.40 per diluted share in the second quarter. This represents a 16 percent increase in adjusted earnings compared to the second quarter of 2013.

"The second quarter was an outstanding one for Devon as we continued to focus on execution in our core and emerging areas, delivering great results," said John Richels, president and chief executive officer. "Our drilling programs drove impressive oil production growth in our retained assets, and our disciplined pursuit of high-margin production also improved pre-tax cash margins by 40 percent year over year."

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 the announced sale of our U.S. non-core assets in June, the portfolio transformation that we announced late last year is now complete," Richels said. "Devon emerges with a formidable, more focused portfolio positioned in some of the most attractive North America resource plays. We project liquids to approach 60 percent of our production by year-end and expect to deliver attractive high-margin production growth for many years to come." Retained Assets Drive Strong Production Growth Total production of oil, natural gas and natural gas liquids averaged 667,000 oil-equivalent barrels (Boe) per day in the second quarter of 2014. Excluding production associated with divestiture properties, production from Devon's retained, go-forward asset base increased to 620,000 Boe per day in the second quarter. This represents a 14 percent increase compared to the second quarter of 2013. The company's divestiture assets averaged 47,000 Boe per day in the second quarter, of which 77 percent was natural gas.

Growth in oil production drove the increase in second-quarter production from the company's go-forward assets. Oil production from these retained assets averaged 205,000 barrels per day, a 34 percent increase compared to the second quarter of 2013. The most significant growth came from the company's U.S. operations, where oil production increased a substantial 79 percent year over year. This dramatic increase in U.S. oil production is largely attributable to growth from Devon's Permian Basin and Eagle Ford operations. Reconciliations of retained and non-core asset production are provided later in this release. Key Operating Highlights Permian Basin - Net production averaged a record 95,000 Boe per day in the second quarter, a 25 percent increase compared to the second quarter of 2013. Light-oil production accounted for nearly 60 percent of Devon's total Permian production.

The Bone Spring play in the Delaware Basin was a significant contributor to the company's growth in the Permian. Devon added 22 new Bone Spring wells to production in the second quarter, with initial 30-day rates averaging 660 Boe per day, exceeding the company's type-curve expectations. Devon has identified 3,500 risked, undrilled locations across its Bone Spring acreage position and expects to generate additional inventory increases over time.

Also in the Delaware Basin, Devon commenced production on two high-rate oil wells targeting the Delaware Sands in Lea County, New Mexico. Initial 30-day production from each of these two wells averaged about 1,000 Boe per day, which was nearly 70 percent light oil. The company has approximately 80,000 net acres prospective for the Delaware Sands within Southeast New Mexico.

In the Southern Midland Basin, Devon delivered another quarter of strong results from its oil development program in the Wolfcamp Shale. During the second quarter, the company brought 30 Wolfcamp Shale wells online, increasing average net production in this play to 12,000 Boe per day. This represents year-over-year net production growth of 9,000 Boe per day. Eagle Ford - In the second quarter, Devon's net production averaged 65,000 Boe per day. This result was in line with the company's guidance range in spite of production interruptions related to third-party gathering system downtime. These gathering constraints reduced production by approximately 8,000 Boe per day in the quarter. With the acceleration of well tie-ins, Devon's net production in June increased to an average 73,000 Boe per day, representing an increase of nearly 50 percent from the first-quarter exit rate. The company remains on track to average 70,000 to 80,000 net Boe per day from this world-class asset for its 10 months of ownership in 2014.

During the second quarter, the company added 60 new Eagle Ford wells to production, with initial 30-day production rates for these wells approaching 1,200 Boe per day. Included in Devon's second quarter results was the company's first operated well in Lavaca County, Texas. Initial 24-hour production from the Ronyn 1H was approximately 1,600 Boe per day, which was 70 percent light oil.

In addition to an active upstream program, the company recently completed construction of its Victoria Express Pipeline (VEX) in the Eagle Ford which provides marketing flexibility. VEX is a 56-mile oil pipeline that runs from Devon's core position in DeWitt County to Port of Victoria terminal on the Texas Gulf Coast. Initial capacity on VEX is 50,000 barrels per day, with invested capital to date totaling $70 million. Devon owns 100 percent of VEX, making this strategic midstream asset a possible candidate for drop down into EnLink Midstream. Canadian Thermal Oil -The significant improvement in Western Canadian Select benchmark pricing during the quarter increased price realizations at Devon's Jackfish thermal oil projects to $65.88, a 22 percent increase compared to the second quarter of 2013.

Gross production from Devon's Jackfish 1 and Jackfish 2 thermal oil projects averaged 60,000 barrels of oil per day in the second quarter, a 3 percent increase compared to the year-ago period. After accounting for royalties, net production from the company's Jackfish complex averaged 52,000 barrels per day. Second-quarter results were highlighted by the excellent performance at Jackfish 1, where gross production exceeded name-plate facility capacity, averaging 36,000 barrels per day.

Construction of the company's Jackfish 3 thermal oil project was completed in the second quarter, and first steam commenced in early July. First oil will occur in the third quarter, with production ramping throughout 2015. At peak production, Devon's three 100 percent-owned Jackfish projects are expected to produce 105,000 barrels per day before royalties and have the potential to generate in excess of $1 billion of free cash flow annually.

Also completed in the second quarter was the expansion of Devon's Access Pipeline. The Access Pipeline system services the company's growing thermal oil business in Canada by delivering diluent to its production facilities and transporting blended oil to market in Edmonton. The company owns a 50 percent interest in this strategically located pipeline, which has a gross capacity of 340,000 barrels per day. To date, the company has invested approximately $1 billion in this project. Devon has granted EnLink Midstream a right of first offer for its interest in Access Pipeline. Anadarko Basin - Net production in the second quarter averaged a record 93,000 Boe per day. Second-quarter liquids production increased 26 percent compared to the prior-year quarter. Liquids now account for 45 percent of total production in the Anadarko Basin.

The Cana-Woodford play in the Anadarko Basin was the most significant contributor to this strong second-quarter production growth. Devon brought 20 Cana-Woodford wells online, with initial 30-day rates averaging 1,250 Boe per day, of which 55 percent was liquids. Driven by an enhanced completion design, these outstanding initial production rates exceeded the company's Cana-Woodford type curve by more than 35 percent.

Given the company's recent success in the Cana-Woodford, Devon further bolstered its leasehold position in May by acquiring an additional 50,000 net acres in the core of the play. This transaction closed in late June, increasing the company's total Cana-Woodford position to roughly 280,000 net surface acres with stacked-pay potential. This additional acreage further bolsters the thousands of undrilled locations the company's has in this high-quality, liquids-rich play.

Keywords for this news article include: Oil & Gas, Natural Gas, Devon Energy Corporation.

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Source: Energy Weekly News


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