Devon Earnings: Guidance Beat on Production and Unit Costs

Devon enjoyed a solid first quarter, beating the midpoint of production guidance by 1% for both oil and oil equivalents. Management attributed this to better-than-expected asset performance across the portfolio, but the Exotic Cat Raider project in the Delaware Basin was the standout (comprising six wells drilled with 3-mile laterals, with the top well averaging 7,200 barrels of oil equivalent per day in the first month of production). Meanwhile, lease operating expense rose less than expected due to lower commodity prices (which translates to lower fuel costs). And general and administrative expense was within guidance, but 12% lower sequentially due to merger synergies. On the negative side, realized prices for oil and natural gas liquids declined 4% and 2%, respectively—not out of line from what other firms have reported. But overall, margins were still better than expected, leading to adjusted earning per share exceeding FactSet consensus by 6%. We intend to incorporate these results shortly, but after this first look our $42 per share fair value estimate and narrow moat rating are unchanged.