Source: Devon Energy.
announced its second-quarter results on Aug. 6. The
independent oil and gas company
reported net earnings of $675 million, or $1.65 per share. That
was actually a bit lower than last year's second quarter, when
Devon reported net earnings of $683 million, or $1.69 per share.
However, on an adjusted basis, which is favored by analysts, the
company last week reported earnings of $1.40 per share, which was
in line with what observers expected. Even better, it was 16%
higher than the same period of 2013.
Continued focus on oil-fueled results
Devon Energy's focus has been on growing its oil production, and
the company didn't disappoint. Oil production in the U.S. surged
79% over the past year. This focus on high-margin oil has really
been felt on Devon's bottom line: The company generated $2
billion in cash flow from operations in the latest quarter, which
was up 47% from the year-ago quarter.
Devon Energy's focus on oil has been two-fold. The company has
focused its drilling capital on oil-rich wells in the Permian
Basin and in the recently acquired play in the Eagle Ford shale.
At the same time the company has shed natural gas resources,
unloading $2.3 billion in noncore assets
across the U.S. to
in the second quarter. LINN Energy, which is a
master limited partnership
, has been
scooping up low-decline natural gas assets
as these provide the stable income the company desires to
more easily fund its distribution to unitholders. In the second
quarter,LINN Energy also picked up
Pioneer Natural Resources
' natural gas assets in the Hugoton Basin for $340 million. Both
deals enabled LINN Energy to earn low-risk income from natural
gas, while Devon Energy and Pioneer Natural Resources refocused
the capital received to invest in higher returning assets that
will fuel oil production.
What's fueling growth?
One reason for Devon Energy's oil production surge over the past
year was the addition of the Eagle Ford shale to its portfolio.
Devon Energy produced an average of 65,000 barrels of oil per
day, or BOE/d, last quarter in the Eagle Ford. While that was in
line with the company's expectations, production could have been
a lot better. Devon suffered from third-party logistics problems
as a gathering system experienced some downtime, which
constrained takeaway capacity. Without these constraints the
company would have produced another 8,000 BOE/d last quarter,
which would have padded its earnings results.
Source: Devon Energy.
Investors should expect the Eagle Ford shale to continue to
fuel results in the second half of the year. With its constrained
wells now tied into a gathering system, production is averaging
well over 73,000 BOE/d, which is 50% higher than the company's
output at the end of the first quarter. Looking ahead, Devon
expects to average 70,000-80,000 BOE/d in the Eagle Ford shale
this year, suggesting production in the second half will be
Why it matters
In addition to the Eagle Ford shale, Devon Energy also has
meaningful oil-rich positions in the Permian Basin, the
Mid-Continent, the Rockies, and the Canadian oil sands. These
high-margin oil plays are boosting the company's profits and cash
flow. As the following slide points out, the company's margins
per barrel of oil equivalent are up 40% in the past year as a
direct result of the focus on drilling oil wells.
Source: Devon Energy
link opens a PDF
While oil and natural gas liquids fueled 73% of the company's
revenue last quarter, the two combined for just 57% of
production. Meanwhile, natural gas delivered 43% of production
but just 27% of revenue. This shows that the company's continued
shift toward oil is yielding a meaningful increase in revenue and
profits. Oil and natural gas liquids are expected to be 60% of
production by the end of the year.
Because of this, investors should expect growth in profits
this year and beyond as Devon's oil-focused drilling program
continues to deliver results.
Do you know this energy tax "loophole"?
You already know record oil and natural gas production is
changing the lives of millions of Americans. But what you
probably haven't heard is that the IRS is encouraging investors
to support our growing energy renaissance, offering you a tax
loophole to invest in some of America's greatest energy
companies. Take advantage of this profitable opportunity by
grabbing your brand-new special report, "
The IRS Is Daring You to Make This Investment
," and you'll learn about the simple strategy to take
advantage of a little-known IRS rule. Don't miss out
on advice that could help you cut taxes for decades
to learn more.
Devon Energy Corp. Earnings: Oil Continues to
originally appeared on Fool.com.
owns shares of Linn Energy, LLC. The Motley Fool owns shares of
Devon Energy. Try any of our Foolish newsletter services
free for 30 days
. We Fools may not all hold the same opinions, but we all believe
considering a diverse range of insights
makes us better investors. The Motley Fool has a
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a