Devon Energy (DVN) 6 Nov 24 2024 Q3 Earnings call transcript

Devon Energy's third quarter earnings call revealed a company on the rise, with strong operational and financial results that have set the stage for a robust future. The company's focus on executing its strategic plan has resulted in record production of 728,000 barrels of oil equivalent per day, including 335,000 barrels of oil per day. This achievement has enabled Devon to raise its full-year production guidance to 730,000 BOE per day, an increase of 12%.

The company's operational performance has been particularly noteworthy in the Delaware Basin, where well productivity has been strong. Devon's ability to exceed guidance expectations in all quarters this year, while also delivering solid base production performance across all 5 basins, speaks to the company's operational excellence and strategic planning. The recent acquisition of Grayson Mill has further enhanced Devon's position as one of the largest producers in the U.S., with an estimated average daily oil rate of around 380,000 barrels per day.

The successful execution of the Grayson Mill acquisition has been a key highlight of Devon's strategy, underscoring the company's commitment to strategic M&A and its ability to integrate new assets effectively. The acquisition has nearly tripled Devon's production in the Williston Basin and extended its resource depth, providing about 10 years of inventory at current activity levels.

Despite the volatile market backdrop, Devon remains focused on its strengths and is well-positioned to succeed through a variety of commodity cycles. The company's high-quality portfolio, strong balance sheet, and disciplined business model have positioned it to navigate through market uncertainties and capitalize on opportunities as they arise.

Looking Ahead: Strategic Priorities and Future Growth

Devon's strategic priorities for 2025 are centered on operational excellence and innovation, a multi-basin portfolio, and financial strength and flexibility. The company is committed to maintaining its financial strength and will continue to look for opportunities to further enhance its portfolio and grow its resource base. Devon's focus on delivering value to shareholders through dividends and share buybacks is a testament to its commitment to maximizing shareholder returns.

The 2025 outlook is shaping up to be a strong year for Devon, with healthy growth in oil and robust free cash flow expected, even in a lower commodity environment. The legacy portfolio in key U.S. basins will provide a solid foundation for the company to continue its momentum, and the integration of the Grayson Mill acquisition is expected to deliver significant benefits.

Operational Excellence and Efficiency Gains

Devon's operational performance in the third quarter reflects exceptional execution across the board, with a focus on operational excellence and innovation. The company's premier asset portfolio, talented organization, and disciplined capital programs have contributed to strong well productivity, improved cycle times, and better base production results. These achievements demonstrate Devon's commitment to operational output without compromising safety and environmental metrics.

The Delaware Basin has been a key contributor to Devon's success, with record basin-level production volumes of 488,000 BOE per day. The CBR 12-1 development, a multi-well project co-developing the Wolfcamp A, Wolfcamp B, and shallower zones in the Bone Spring, has yielded significant insights and achievements. The project's 30-day rates from a 21-well package averaged 3,300 BOE per day per well, and estimated recoveries exceeded 2 million BOE per well. These results underscore Devon's commitment to operational excellence and its ability to innovate and improve efficiency.

Financial Performance and Shareholder Returns

Devon's financial performance in the third quarter was robust, with core earnings totaling $683 million or $1.10 per share. EBITDA reached $1.9 billion, and operating cash flow exceeded consensus estimates, generating $1.7 billion. After funding capital requirements, the company generated $786 million in free cash flow for the quarter. This strong cash flow generation enabled Devon to distribute $431 million to shareholders through fixed dividends and share buybacks.

Devon's capital allocation strategy is focused on delivering value to shareholders, with a bias towards share repurchases. The company's commitment to a disciplined capital plan and a strong balance sheet has enabled it to weather market volatility and position itself for future growth. Devon's capital efficiency gains, driven by a focus on operational output, have contributed to a reduction in drilling activity and improved drilling efficiencies.

M&A and Strategic Partnerships

Devon's strategic approach to M&A and partnerships has been a key factor in its success. The acquisition of Grayson Mill has enhanced the company's position in the U.S. and provided opportunities for synergy and innovation. The company's ongoing discussions with utilities and power pools regarding potential JVs in power and nuclear energy highlight its strategic focus on diversification and value creation.

Investor Engagement and Transparency

Devon's third quarter earnings call was characterized by transparency, strategic focus, and a commitment to delivering value to shareholders. The company's engagement with key shareholders and analysts during the call provided valuable insights into its operational and financial performance, strategic priorities, and future growth prospects. Devon's commitment to investor relations and stakeholder communication is a testament to its commitment to transparency and accountability.

Conclusion

Devon Energy's third quarter earnings call painted a picture of a company on the rise, with strong operational and financial performance, strategic acquisitions, and a clear focus on delivering value to shareholders. The company's strategic priorities for 2025 are centered on operational excellence, innovation, and financial strength, positioning it for a robust future. Devon's commitment to its stakeholders, operational efficiency, and financial discipline are key strengths that will continue to drive its growth and success.