Devon Energy Corporation's third-quarter 2014 earnings per share
and revenues beat estimates despite the slide in global oil price,
primarily on solid production from its high quality assets and
improving gas prices. The company's strategy of divesting non-core
assets in the U.S. and Canada, and focusing on reserve-rich onshore
U.S. assets is yielding results. Retained North American assets
contributed to its strong third-quarter performance. Devon is using
the proceeds from non-core asset sales to pay its debts. We expect
the company's cash generating capacity and the declining debt level
to strengthen its financial position. However, volatile crude
, and cyclical demand for oil, natural gas and natural gas liquids
(NGL) could weigh on its profitability. Therefore, we maintain our
Neutral recommendation on the stock.
Oklahoma City, OK-based Devon Energy Corporation is an
independent energy company engaged primarily in the 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 primarily been 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 the 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 is 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
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. Of the total reserves,
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
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