Devon Earnings: Accelerated Completions Push Production Near Top of Guidance

Devon DVN posted production volumes near the top end of management guidance, at 662 thousand barrels of oil equivalent per day, compared with 664 mboe/d at the midpoint (up 4% sequentially). But the upside is explained by accelerating activity into the second quarter that was planned for the back half of the year. The firm was always planning a front-loaded capital program, with a temporary fourth fracking crew in the Permian in the first half of the year only. This was expected to drive a third-quarter peak in completion activity, but the surge came early (new wells went from 97 in the first quarter to 131 in the second, and updated guidance calls for 90 in the third quarter). There’s no change to the full-year outlook for production or capital spending, and the firm anticipates a similar cadence in 2024.

While second-quarter production was above guidance, weaker-than-expected NGL and natural gas pricing had a negative impact on revenue. As a result, the firm’s financial results were merely in line with consensus estimates (according to FactSet). Production costs were consistent with management projections, although full-year guidance was nudged higher for lease operating expense because of a new water infrastructure joint venture (likely related to the firm’s focus on reducing freshwater usage and increasing recycling). Declining commodity prices have tempered the gusher of free cash that the firm was enjoying last year, but the firm still generated a surplus of about $500 million. All of this will go back to shareholders (the firm spent about $200 million on buybacks in the second quarter and declared just over $300 million in fixed-plus-variable dividends for the third quarter).

We intend to incorporate these results shortly, but for now our narrow moat and $38 per share fair value estimate are unchanged.