DEVON ENERGY CORP. (New York symbol DVN; www.dvn.com) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 61% gas and 39% oil.
In 2011, Devon sold all of its international and Gulf of Mexico properties, which it saw as risky and expensive to develop. The company is now focused on its North American projects, which include conventional production, shale oil in Texas and oil sands in Alberta.
Devon has formed joint ventures to cut the risk of its big development projects. Last year, it sold a one-third stake in five shale oil and gas fields to giant Chinese state-owned petroleum and chemical company Sinopec for $2.2 billion. As well, Japan’s Sumitomo Corp. bought 30% of the Cline and Wolfcamp shales in Texas for $1.4 billion.
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Energy stocks: Production numbers down but exploration and development remains high
Meanwhile, the company’s daily production averaged 678,600 barrels of oil equivalent in the three months ended December 31, 2012. That’s down slightly from 680,400 barrels a year earlier.
Cash flow per share declined 23.0%, to $3.01 from $3.91, on lower oil and gas prices. Devon will spend as much as $7.0 billion to explore and develop its properties this year.
The shares trade at 4.6 times Devon’s forecast 2013 cash flow of $12.04 a share, based on the latest quarter. The company has just raised its quarterly dividend by 10.0%, to $0.22 from $0.20. The shares now yield 1.6%.
In the latest edition of Stock Pickers Digest, we look at whether Devon’s balance sheet and cash flow will support the company’s exploration and development initiatives and whether it can keep increasing its dividend. We conclude with our clear buy-hold-sell advice on the stock.
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Several years ago, Devon Energy decided to unload its overseas properties and concentrate on oil and gas development in North America. How important do you believe relatively close and safe sources of energy are to North America in general and Canada in particular? Are you more likely to invest in energy stocks whose projects seem less exposed to overseas risk? Let us know what you think.
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