Devon Energy (DVN) 7 Aug 24 2024 Q2 Earnings call transcript

Devon Energy's second quarter earnings call, led by CEO Richard Muncrief, highlighted a strong performance driven by strategic operational improvements and the accretive acquisition of Grayson Mill in the Williston Basin. The company reported record oil production, exceeding expectations with a 9% increase year-over-year, totaling 335,000 barrels of oil per day. This success is attributed to the Delaware Basin's superb performance, which led to record high production of 461,000 BOE per day, an increase of 5% compared to the previous quarter.

The Delaware Basin's performance was bolstered by the addition of a fourth frac crew, which brought online 62 new wells, leading to a greater than 10% uplift in well productivity compared to last year. This operational excellence was not limited to the Delaware Basin, as redevelopment success in the Eagle Ford, coupled with appraisal progress in the Powder River Basin and a strong base production from the legacy Williston position, also contributed to the volume beat.

Devon's effective cost management was a significant factor in the impressive performance, with capital coming in well below expectations. The strong cost performance was attributed to efficient supply chain management and improving cycle times that resulted in multiple drilling and completion records across the asset portfolio. These efficiencies not only accrue to the company in the form of lower well costs but also save valuable time, bolstering project-level returns.

The acquisition of Grayson Mill in the Williston Basin was a strategic move to strengthen the quality and depth of Devon's asset portfolio, adding to its inventory in the best parts of the top U.S. shale plays. Upon completion of the transaction, Devon will become one of the largest oil producers in the U.S., with an estimated average daily rate of around 375,000 barrels of oil per day. This acquisition nearly triples Devon's production and positions the company for long-term growth in high-margin production from this prolific oil field.

Devon's strategic focus on operational efficiencies and effective cost management, coupled with the Grayson Mill acquisition, has led to an improved outlook for the company. The company raised its production guidance for 2024, projecting to produce more than 680,000 BOE per day, a 5% increase compared to initial budget expectations. This growth is expected to be supported by the Grayson acquisition, which is expected to be additive to free cash flow and provide ample capacity for share repurchases, further bolstering per share growth trajectory.

The earnings call also highlighted the company's commitment to shareholder returns, with a $5 billion increase in the share repurchase program, demonstrating the company's confidence in its future prospects and commitment to delivering value to its shareholders.

In conclusion, Devon Energy's second quarter performance was marked by record oil production, effective cost management, and a strategic acquisition that positions the company for long-term growth. The company's focus on operational excellence and strategic expansion is expected to drive sustainable growth and create value for its shareholders.