Devon Beats on Strong Volume - Analyst Blog

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Devon Energy Corp. ( DVN ) reported fourth-quarter 2011 adjusted EPS of $1.55  which came above the Zacks Consensus Estimate of $1.48.

On a GAAP basis, the company reported an EPS of $1.25 versus $1.29 in the year-ago quarter. The difference of operating and GAAP earnings of 30 cents in the reported quarter resulted from the 46 cents gain from oil and gas derivatives and financial instrument and 16 cents from loss from foreign exchange and insurance.

For full year 2011, Devon Energy posted earnings of $6.14 per share, striding ahead of the Zacks Consensus Estimate of $6.05.


GAAP earnings for the full year were $11.25 per share compared with a net loss of $10.31 per share in 2010.

Revenue

Devon's quarterly revenues of $2,585 million surpassed the Zacks Consensus Estimate of $2,532 million and the year-ago quarter revenue of $2,135 million.

The full-year 2011 results came in at $11,454 million, exceeding both Zacks Consensus Estimate of $10,618 million and the year-ago revenue of $9,940 million.

The full-year performance was driven by increased oil and natural gas liquids ( NGL ) production and sales volumes along with favorable prices realized.

Operating Results

The favorable 2011 results reflect solid performance of the company's North American drilling program for the year. The North American onshore production increases 8% from the 2010 levels to 658,000 oil-equivalent barrels per day in 2011.

During the year, the company invested $1.5 billion on acreage acquisitions, and its total drill-bit reserve additions during the year surpassed the production rate. The liquids reserve replacement rate was 230% in 2011.

Lease operating expenses of the company in 2011 increased to $1.9 billion from $1.7 billion in 2010. The increase in cost was due to higher Canadian exchange rate and higher overall service costs.

However, overall, the cost efficiencies realized from Devon's cost strategic repositioning paid off very well. As a percentage of revenue total cost declined by 156 points from the 2010 levels.

Realized Prices

Realized oil prices in the quarter improved significantly to $78.47 per barrel, representing a 14.8% jump from the year-ago quarter. Realized prices for natural gas liquids were up 21.7% to $42.16 per barrel from $34.65 per barrel in the year-ago quarter.

The natural gas prices during the quarter remain at depressed levels; the natural gas price realization were down by 18.3% year over year to $3.79 per thousand cubic feet (Mcf) from $4.64 per Mcf in the year-ago quarter.

Reserves

At year-end 2011, Devon grew its proved reserves to an all-time record of 3.0 billion equivalent barrels (BBoe). During the year the company added 386 million Boe through extension and new discoveries.

Devon's total proved reserves for 2011 included 2.2 BBoe of proved developed reserves, making up 74% of total reserves. The company's year-end proved reserves were composed of 705 million barrels of crude oil, 10.48 trillion cubic feet of natural gas and 552 million barrels of natural gas liquids.

Financial Health

Devon maintains a healthy financial and liquidity position. Devon's operating cash flow in 2011 increased 13.6% year over year to $6.2 billion.

During the year the company completed its share repurchase program announced in May 2010. The company repurchased 49.2 million shares for $3.5 billion, with an average repurchase price of $71.14 per share.

As of December 31, 2011, the company's cash balances totaled $5.5 billion versus $2.9 billion as of December 31,2010.

Peer Update

Chesapeake Energy Corporation ( CHK ), which competes with Devon Energy is expected to report fourth quarter earnings on February 21, 2012. The Zacks Consensus estimates for its fourth quarter and fiscal 2011 earnings per share is expected to be 60 cents and $2.81 respectively.

Our View

Devon Energy has surpassed our expectation riding on strong production and realized prices. The few projects of the company which came online during the last quarter of the fiscal will likely to add to the strength of the company as we move forward.

Devon at the beginning of 2012 made a strategic move and monetized a portion of its oil and gas holding for a total consideration of $2.5 billion, out of which $1.6 billion will be paid in phases by China based Sinopec International Petroleum Exploration & Production Corporation ("SIPC"). We believe this deal will help Devon to develop its resources in five shale plays and further boost its topline in the long run.

Based in Oklahoma City, Oklahoma, Devon Energy Corporation, is an independent energy company engaged primarily in exploration, development and production of oil and natural gas. Devon Energy currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.


 
CHESAPEAKE ENGY ( CHK ): Free Stock Analysis Report
 
DEVON ENERGY ( DVN ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CHK , DVN , NGL

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