Devon Energy Corp., Oklahoma City, earned more than $1.9 billion in the second quarter, more than seven times its profits from the same period of 2021, as higher crude oil and gas prices drove its revenue to more than $5.6 billion from $2.4 billion. Free cash flow in the 3 months ended June 30 came in at a record $2.1 billion.
Helping drive Devon’s performance during the quarter was higher-than-expected production from its portfolio, mostly from its core Delaware basin holdings, which grew output 22% to an average of 436,000 boe/d. Overall production was 616,000 boe/d, up 7% from the prior-year period. Production costs of $13.01 produced a cash margin of $60.12/boe versus about $32 in second-quarter 2021.
Devon executives updated the company's full-year production guidance by about 3% to 600,000-610,000 boe/d, which includes the Williston basin addition of Rimrock Oil & Gas, for which the company paid $865 million earlier this summer (OGJ Online, June 9, 2022). They also adjusted 2022 guidance to include $100 million in planned upstream capital spending on the Rimrock assets as well as $150 million more than previously expected to account for inflation in field services prices. Capex in the second quarter was $513 million, below executives’ $540 million forecast.
Capex guidance changes won't largely impact forecast cash flows, though: Higher production and prices should add more than $1.7 billion to Devon’s 2022 cash flow generation forecasts, which now stand at $6.5 billion (based on an average $95/bbl WTI in the second half). Chief operating officer Clay Gaspar noted on a conference call with analysts that Devon’s reinvestment rate of 22% gives the company “a lot of room to work” when it comes to absorbing higher service costs.
On the conference call, Rick Muncrief, president and chief executive officer, was adamant that Devon – whose directors recently voted to raise the company’s dividend payouts 22% – will continue to prioritize capital returns while keeping top-line growth “steady and consistent.” (The company placed online 67 wells during the second quarter and expects to grow that number 100 in this year's third quarter.)
“I assure you there is no change to our strategy,” Muncrief said, noting that Devon has returned to shareholders more than $6 billion via dividends and share buybacks in the past 18 months, an amount greater than the combined valuations of Devon and WPX Energy when they joined forces in early 2021.
Shares of Devon (Ticker: DVN) were up slightly in afternoon trading Aug. 2. Year to date, shares have risen about 35%, growing the company’s market capitalization to more than $40 billion.
