Devon Energy Corporation
) reported second-quarter 2012 pro forma earnings per share of 55
cents, missing the Zacks Consensus Estimate of 81 cents. The
reported quarter's results were also way below the year-ago
quarter's earnings of $1.71 per share.
This decline in earnings was due to higher depreciation, depletion
and amortization ("DD&A") charges and an increase in general
and administrative expenses, partially offset by lower marketing
and midstream operating expenses and a decline in tax charges.
On a GAAP basis, the company reported earnings per share of $1.18
in the second-quarter 2012, down from $6.50 in the year-ago
quarter. The variance between GAAP and pro forma earnings was due
to a gain of 64 cents from oil and gas derivatives and a penny
charge related to interest rate and other financial instruments.
Devon's quarterly revenue was $2.6 billion versus $3.2 billion in
second-quarter 2011. This decline in revenue was due to lower oil,
gas and natural gas liquids ("NGL") sales, and decrease in
marketing and midstream revenues; partially offset by higher oil,
gas and NGL derivatives.
The reported revenue beats the Zacks Consensus Estimate of $2.4
In second-quarter 2012, Devon Energy's total oil, natural gas and
NGL production averaged to 679,000 barrels of oil-equivalent
("Boe") per day compared with 660,000 Boe in the year-ago quarter.
This growth was primarily driven by increase in production of
Jackfish and Permian Basin operations.
However, the production was partially affected due to
interruptions in natural gas processing facilities and maintenance
downtime at the company's Bridgeport operations in North Texas.
The company's lease operating expenses in the reported quarter
increased to $513 million from $453 million in the year-ago
quarter. The rise in expenses was due to higher industry costs
related to an increase in operations in the oil-focused basins.
In the second quarter of 2012, interest expenses were $99 million,
up $14 million from the year-ago period due to an increase in total
In the reported quarter, Devon's overall realized price was $30.51
per Boe compared with $37.62 per Boe in the year-ago period. This
decline in price was due to depressed oil, gas and NGL realized
The oil price realization was down 12.2% year over year to $71.84
per barrel in the quarter under review from $81.82 per barrel in
the year-ago quarter. Realized prices for gas were also down 35.3%
year over year to $2.66 per thousand cubic feet ("Mcf") from $4.11
per Mcf in the year-ago quarter. In second-quarter 2012, realized
prices for NGL were also down 25.6% to $31.42 per barrel from $
42.25 per barrel in the year-ago quarter.
Cash and cash equivalents as of June 30, 2012 were $6.1 billion
versus $5.6 billion as of December 31, 2011.
Capital expenditure in second-quarter 2012 was $2.2 billion, up
from $1.9 billion reported in the year-ago period.
Long-term debt was $8.5 billion as of June 30, 2012 compared with
$6.0 billion as of December 31, 2011.
Joint Venture with Sumitomo Corporation
Devon Energy Corporation has entered into an agreement, worth
approximately $1.4 billion, with Sumitomo Corporation. Per the
contract, Sumitomo will invest $340 million in cash upon closing of
the agreement and an added $1.025 billion will be invested as a
drilling carry. In exchange, Sumitomo will enjoy 30% of Devon's
interest in 650,000 net acres in the Cline Shale and the
In this agreement, Devon will act as an operator and will be
responsible for commercially marketing all production from these
plays into the North American market.
CHESAPEAKE ENGY (CHK): Free Stock Analysis
DEVON ENERGY (DVN): Free Stock Analysis Report
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This drilling carry investment will fulfill 70% of Devon's capital
requirements related to overall drilling and completion costs. Both
companies expect to drill approximately 40 gross wells in 2012.
Based on the current work program, Devon expects the entire $1.025
billion carry to be realized within the middle of 2014.
Chesapeake Energy Corporation
), which competes with Devon Energy, is slated to report
second-quarter earnings after the close of trading on the New York
Stock Exchange on August 6, 2012. The Zacks Consensus Estimates for
its second-quarter 2012 and full-year 2012 earnings are currently
pegged at 7 cents and 38 cents per share, respectively.
In the quarter under review, Devon Energy managed to beat our
revenue estimate, but failed to meet our earnings projection.
We view Devon Energy as an organization with diversified portfolio
including unconventional resources and significant long-term growth
potential. We believe Devon's continuous investment in low-risk
development projects will provide reliable and repeatable
production and reserves additions. The successful drilling at those
assets subsequently contributes robust top-line performance in the
But, at the same time, we are concerned about oil, natural gas and
NGL price volatility, changes in product demand, and stringent
rules and regulations.
Devon Energy currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating.
Oklahoma City, Oklahoma-based Devon Energy Corporation is an
independent energy company. The company engages primarily in
exploration, development and production of oil and natural gas.