Topic: Energy Stocks

Devon Energy’s refocused operation set to increase shareholder value

One of America’s largest oil and gas producers has now sold nearly $5 billion in non-core assets to pay down its debt and focus on four core areas.

Shareholders have also benefited from a $3.4 billion share buyback and a increased support for the company’s dividends.


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DEVON ENERGY CORP. (New York symbol DVN; www.dvn.com) is one of the largest explorers and producers of oil and natural gas in the U.S. The production mix for the company’s wells is 67% oil and 33% natural gas.

Devon’s output averaged 532,000 barrels of oil equivalent per day for the fourth quarter, ended December 31, 2018. That’s down 2.9% from 548,000 a year earlier. Cash flow per share fell 5.7%, to $1.15 from $1.22. The decline reflects the lower production plus lower oil prices.

Last year, the company sold almost $5 billion in assets. It used the funds to pay down debt and buy back $3.4 billion of its shares.

Devon’s long-term debt of $5.8 billion is a somewhat high 46% of its market cap. However, that’s way down from $10.3 billion at the start of last year. As well, the company’s debt only starts to come due after 2021. Devon also holds $2.4 billion in cash.

The company is now focused on four core areas in Oklahoma and West Texas. It also has several heavy-oil projects in Eastern Alberta.

Energy Stocks: Oil sands sales an option for a stronger focus

The company continues to look at the possible sale or spinoff of its Jackfish Canadian oil sands production as well as its Barnett Shale natural gas assets in Texas.

Other foreign companies that have reduced their ownership in the oil sands in recent years include Norway’s Statoil, France’s Total SA, Arkansas-based Murphy Oil and Houston-based ConocoPhillips.

Removing those operations would make Devon a pure conventional oil producer and let it concentrate on its more-profitable and faster-growing U.S. oil properties.

The company remains on track to expand its light oil production by 16% in 2018. Its cost-cuts and stronger balance sheet will let Devon spend $2.2 billion to $2.6 billion on exploration and development in 2018. To maximize the impact of that spending, the company will focus its drilling rigs on high-return wells in Oklahoma and West Texas.

Spurred by the sale of its EnLink assets, Devon increased its share buyback program from $1 billion to $4 billion of its outstanding shares. That’s equal to 18% of its $21.8 billion market cap.

With the June 2019 payment, the company will also raise its quarterly dividend by 12.5%, to $0.09 from $0.08. The shares now yield 1.2%.

Recommendation in Stock Pickers Digest: Devon Energy is a buy.

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