Topic: Energy Stocks

This energy stock aims to do more with less

With crude oil near $70 a barrel, this stock is tightening its focus to concentrate on its best properties.

One of the largest explorers and producers in the U.S., the company plans to sell its less-important properties by 2020. One recent deal, alone, brought in $3.1 billion. In the meantime, the company is on track to expand oil production by 16% this year.

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DEVON ENERGY CORP. (New York symbol DVN; is one of the largest explorers and producers of oil and natural gas in the U.S. The production mix for the company’s 19,000 wells is 64% oil and 36% natural gas. The company focuses on four core areas in Oklahoma and West Texas. It also has several heavy-oil projects in Eastern Alberta.

Much of its natural gas production comes from the Barnett Shale in North Texas. That’s the first place shale gas was produced in North America and still one of the largest fields on the continent.

In March 2018, Devon agreed to sell the southern portion of its Barnett Shale holdings for $553 million. It completed the sale in the second quarter.

In July 2018 Devon completed the sale of its 64% stake in EnLink Midstream (symbol ENLC on New York) and its 23% interest in EnLink Midstream Partners (symbol ENLK on New York). The total proceeds will be $3.125 billion in cash. That should help Devon cut its general and administrative expenses and interest costs by around $300 million annually. It will also boost its profit margins.

Those deals are part of the company’s plan to sell its less-important properties by 2020. By the end of this year, the company expects to raise $5 billion through these sales.  The company will, however, retain what it sees as the best of its properties. That tighter focus lets Devon cut its workforce numbers and improve efficiency. It’s also key to the company’s future success.

Energy stocks: Sale of EnLink assets prompts big increase in share buybacks

Devon’s output averaged 541,000 barrels of oil equivalent per day (both oil and gas) for the second quarter, ended June 30, 2018. That’s up 0.9% from 536,000 a year earlier.

However, cash flow per share fell 16.3%, to $0.77 from $0.92 a year earlier, mostly due to higher production costs.

The company was able to retire a portion of its debt early this year; its current long-term debt of $5.7 billion is a manageable 26% of its market cap. And none of that comes due before 2021. Devon also holds $1.5 billion in cash.

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.

The company raised its quarterly dividend by 33.3% starting with the June 2018 payment. Investors receive $0.08 a share instead of $0.06. The new annual rate of $0.32 yields 0.8%.

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

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