Devon COO discusses being “more sticky” with designs amid supply chain crunch

May 4, 2022
The Oklahoma City-based company reported strong first quarter results and is growing its dividend and buyback plan.

Devon Energy Corp. is adapting some of its work to deal with the constrained supply chain for oilfield equipment and services, said Chief Operating Officer Glay Gaspar on a call to analysts and investors accompanying first-quarter earnings May 3. 

Noting that “everything is kind of dialed up to 11” when it comes to identifying and managing potential risks from suppliers and vendors, Gaspar also said the Oklahoma City-based company may need to show more patience with its facilities in the field.

“I love innovation. I love change. What’s the next? What’s the 1.1, the 1.2? If the 1.2 is working, how do we get to the 1.3?” said Gaspar, who has overseen Devon’s operations since early 2021 following the acquisition of WPX Energy (OGJ Online, Sept. 28, 2020).

But various supply chain snarls mean such incremental workflow, process, and equipment changes – “that next great idea” – aren’t as practical these days to implement across the company’s operations in five basins and five states. In response, Gaspar said, Devon needs to be “a little more sticky with our designs.”

“What I mean by that is working with our supply chain, telegraphing not just the normal 3-month or 6-month lead times but 9 and 12 months,” he said. “So what you’ll end up seeing is – and you don’t see this on the external but internally – instead of a 1.1, we may wait for a 2.0 innovation to make that next change. That’s just a cost of the current situation.”

First-quarter results

Gaspar made his comments shortly after Travis Stice, chairman and chief executive officer of Devon peer Diamondback Energy Inc., told analysts the oil and gas supply chain will take multiple quarters to catch up to the shortages exploration and production companies are now facing. (OGJ Online, May 3, 2022) But, as was the case with Diamondback, Devon’s financial results for the first quarter were strong: The company reported net income of $995 million on revenues of $3.8 billion, sizable increases from the $213 million and $2.1 billion, respectively, from the first 3 months of 2021.

Total oil equivalent production for the quarter was 575,000 boe/d, an increase of 15% year over year and more than the Devon team had expected but still down from 611,000 in fourth-quarter 2021 in part because of severe weather events. President and Chief Executive Officer Rick Muncrief and his team expect the first quarter production number to be their lowest of the year and think second-quarter production will come in around 600,000 boe/d.

The financial results led Devon’s directors to vote to increase the company’s fixed-plus-variable dividend to $1.27/share from $1 in fourth-quarter 2021 and to grow its share repurchase plan to $2 billion from $1.6 billion. That plan had been $1 billion last fall and Devon has spent $891 million since Sept. 30 to buy back some of its stock.

Investors approved of those numbers and the Devon team’s commentary on its capital return priorities: Heading into the close of the regular session May 3, Devon shares (Ticker: DVN) were up more than 9% to about $63.80. Year to date, they have climbed about 40%, growing the company’s market capitalization to more than $42 billion.