Devon Energy Corp., Oklahoma City, posted a net loss of $670 million in second-quarter 2020 compared to a net loss of $1.8 billion in first-quarter 2020 (OGJ Online, May 6, 2020). The quarterly result was negatively impacted by a $593 million unrealized change in the fair value of the company’s derivative position due to higher futures commodity pricing.
Adjusting for items analysts typically exclude from estimates, Devon had a core loss of $66 million.
The company’s operating cash flow in the second quarter totaled $150 million, with EBITDAX reaching $325 million. The company exited the second quarter with $1.7 billion of cash (inclusive of restricted cash) and an undrawn credit facility of $3 billion.
At the end of the quarter, Devon had an outstanding debt balance of $4.3 billion with no outstanding debt maturities occurring until late 2025.
Second-quarter oil production averaged 153,000 b/d, a 6% increase from the year-ago period, exceeding the company’s midpoint guidance by 3,000 b/d from better-than-expected base production performance in the Eagle Ford and Anadarko basin.
The company’s operating costs, which consists of production expenses, general and administrative (G&A) expenses and financing costs, totaled $13.92/boe, a 14% improvement compared to second-quarter 2019. Devon’s G&A expense declined 31% year-over-year.
Capital spending in the quarter was $203 million, 10% below midpoint guidance, attributable to efficiency gains in the Delaware basin and improvements in service-cost pricing.
Production
Due to low oil prices in the quarter, Devon elected to voluntarily curtail 10,000 b/d. As oil prices have stabilized and begun to recover, the company has no plans to curtail production in second-half 2020.
Devon exited the quarter running nine operated drilling rigs and one completion crew.
Net production in the Delaware basin averaged 149,000 boe/d, a 24% increase compared to the year-ago period. In the quarter, Devon’s Wolfcamp-oriented capital program brought 22 operated wells online across southeast New Mexico. Completed well costs for activity targeting the Wolfcamp formation improved to a new record of $700/ft. Production expenses declined 20% year-over-year to $7.58/boe.
Production in the Powder River basin averaged 24,000 boe/d, of which 76% was oil. During the quarter, Devon dropped its drilling rigs in the basin and limited activity to bringing four new wells online. The average completed well cost for the activity, targeting the Parkman and Turner formations, was $5.9 million.
For the remainder of 2020, the capital program is focused on appraisal work in the Niobrara oil play. A key upcoming project is the Steinle pad, a three-well spacing test targeting the Niobrara “B” interval. The Steinle pad is expected to begin production in this year’s third quarter.
Second-quarter Eagle Ford net production averaged 53,000 boe/d, an 8% increase compared to the year-ago quarter. The company brought online 13 development wells in the quarter, averaging 30-day rates of 2,300 boe/d. Completed well costs for the activity averaged $6.6 million. Devon and its partner are not currently operating drilling rigs or completion crews in the play. The partnership has 22 high-impact uncompleted wells in its inventory and expects to resume capital activity around yearend.
Net Anadarko basin production averaged 90,000 boe/d. The company’s operational focus during the quarter was concentrated on optimizing base production and reducing controllable downtime across the field. Devon does not currently operate drilling rigs or completion crews in the basin.
Guidance
For third-quarter 2020, the company expects to invest $175-225 million of upstream capital. Full year 2020 E&P capital expenditure guidance is lowered to a range of $950 million to $1 billion, a $25 million reduction compared to prior midpoint expectations driven by capital efficiency gains in the Delaware basin, Devon said (OGJ Online, Mar. 12, 2020).
In the third quarter, due to timing of completion activity, Devon expects oil production to decline to 138,000-143,000 b/d. The company is raising its full-year oil production forecast in 2020 to 148,000-152,000 b/d due to strong base production performance across its portfolio, it said.
Additionally, Devon will accelerate closing of its Barnett shale divestiture to and Banpu Kalnin Ventures to Oct. 1 from Dec. 31 (OGJ Online, Apr. 14, 2020).
In other initiatives, the board has declared a $100 million special dividend and a plan to reduce G&A and other cash costs by $300 million annually, and a repurchase of up to $1.5 billion of debt with surplus cash is intended.