Devon Energy Corporation (DVN): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Devon Energy's earnings per share in first-quarter were higher than the Zacks Consensus Estimate, thanks to strong oil production and better realized prices of the product sold. Devon is working on its strategy to divest non-core assets in the U.S. and Canada and focus on the reserve rich onshore U.S. assets. Devon divested its conventional gas assets in Canada and will utilize net proceeds of $2.7 billion to pay down outstanding debts incurred for acquiring Eagle Ford assets. Devon decided to strengthen its operation in Eagle Ford. In addition, the acquisition of acreage in Cana-Woodford will further boost its liquid production going forward. Formation of the new midstream MLP business with Crosstex will benefit the company given the increasing oil and gas drilling activities in the U.S. However, the cyclical demand for oil, natural gas and NGL, along with volatility in prices, could weigh on its profitability. We retain our Neutral recommendation.

Overview:

Oklahoma City, OK-based Devon Energy Corporation is an independent energy company engaged primarily in exploration, development and production of oil and natural gas. The company's oil and gas operations are mainly concentrated in the onshore areas of North America, including the U.S. and Canada.

Besides the exploration and production (E&P) business, Devon has marketing and midstream operations, primarily in North America. The marketing and midstream business includes selling gas, crude oil and natural gas liquids (NGL) constructing and operating pipelines storage and treating facilities and natural gas processing plants. These midstream facilities are used to transport oil, gas, and NGLs and process natural gas. Over the last few years, Devon's capital spending has been primarily directed towards expanding and developing its oil and liquid-rich assets to achieve a more balanced portfolio.

Earlier, Devon reported its financials under the two segments: U.S. and Canada. With creation of EnLink in first-quarter 2014, the company considered EnLink as an operating segment. Currently, Devon has three reporting segments - U.S., Canada and EnLink.

The U.S. operations are spread in Permian Basin, Mid-Continent, Rocky Mountains and Gulf Coast.

The Canadian holdings are located in the central and southern plains of Alberta and Saskatchewan, northwestern Alberta and northeastern British Columbia, Lloydminster region, the Horn River basin and the Deep Basin.

The EnLink segment is engaged in midstream activities. It is a combination of all the U.S. midstream assets of Devon and the properties of the former Crosstex Energy, Inc. and Crosstex Energy, L.P. The segment consists of two entities - EnLink Midstream, LLC and EnLink Midstream Partners, LP, and collectively known as EnLink Midstream. The segment has operations in the Barnett, Permian Basin, Cana and Arkoma Woodford, Eagle Ford, Haynesville, Gulf Coast, Utica and Marcellus Shales. It has wide array of asset base, including around 7,300 miles of gathering and transportation pipelines, 12 processing plants and 6 fractionators. EnLink segment also has barge and rail terminals and product storage facilities.

At the end of 2013, Devon had proved reserves of approximately 2.96 billion barrels of oil equivalent (BOE), of which about 52% were natural gas and the rest were liquids. Out of the total reserve 87% belonged to the company's core and emerging properties and the rest to non-core properties. In 2013, Devon's combined production volume was 692.9 thousand BOE per day, 2% higher than the 2012 level.

Source: Company


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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 , Stocks

Referenced Stocks: NGL , BOE , DVN

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