On April 10, we issued an updated research report on
independent energy company
Devon Energy Corporation
). Devon Energy is set to benefit from its focus on increasing
its presence in Eagle Ford Shale and strategic ventures with
international players. However, Devon has failed to increase its
reserves in the last two years and needs to work out ways to
expand its existing reserve base.
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Devon Energy, a Zacks Rank #3 (Hold) stock, exited 2013 on a
positive note riding on strong production and better realized
prices. To strengthen its position in the reserve rich Eagle Ford
shale, Devon is investing $1.1 billion in 2014. The company has
plans to drill 200 wells in this region this year. The Eagle Ford
finding can boost the reserves of the company.
Apart from focusing on its exploration and production activity,
Devon is also paying attention to its midstream operations. Devon
combined all of its U.S. midstream assets with Crosstex Energy
Inc. to form a new midstream MLP business,
EnLink Midstream Partners LP
). Devon will have a significant influence on the operation of
the new business through its majority ownership interest in both
the general partner and the MLP and majority representation on
both boards. The emphasis on the development of midstream assets
appears to be a smart move, given the oil and natural gas
production boom in the U.S. shale plays.
Devon however operates in a very competitive oil and gas industry
and will need to compete with other players like
EOG Resources, Inc.
Anadarko Petroleum Corporation
) to acquire and develop oil and gas leases and properties.
Devon Energy's operations are subject to U.S. and Canadian rules
and regulations. The changes and modification to public policies
can affect the operations of the company. Compliance with these
provisions and adherence to any change in policies would increase
operating costs and constrain margins.
Devon's strong financial position allows it to boost shareholder
returns through dividend hikes. Devon has been rewarding its
shareholders consistently since 1993. The company exited 2013
with a cash balance of $6 billion, providing ample liquidity for
dividend payments, investment in organic growth projects and