Devon Energy Corporation (DVN)

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Devon Energy (DVN)

Q1 2011 Earnings Call

May 04, 2011 11:00 am ET

Executives

Vincent White - Senior Vice President of Investor Relations

Darryl Smette - Executive Vice President of Marketing & Midstream

David Hager - Executive Vice President of Exploration & Production

Jeffrey Agosta - Chief Financial Officer and Executive Vice President

John Richels - Chief Executive Officer, President and Director

Analysts

Brian Singer - Goldman Sachs Group Inc.

Scott Hanold - RBC Capital Markets, LLC

David Kistler - Simmons & Company International

Mark Polak - Scotia Capital Inc.

David Tameron - Wells Fargo Securities, LLC

Mark Gilman - The Benchmark Company, LLC

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc.

Eric Hagen - Lazard Capital Markets LLC

John Herrlin - Societe Generale Cross Asset Research

S. Ross Payne - Wells Fargo Securities, LLC

Gilbert Van Voorden

Harry Mateer - Barclays Capital

Presentation

Operator

Welcome to Devon Energy's First Quarter 2011 Earnings Conference Call. [Operator Instructions] This call is being recorded. At this time, I'd like to turn the conference over to Mr. Vince White, Senior Vice President of Investor Relations. Sir, you may begin.

Vincent White

Thank you, operator, and good morning to everyone. Welcome to Devon Energy's First Quarter 2011 Earnings Conference Call and Webcast.

For today's call, as usual, I'll begin with a few preliminary items and then I'll turn the call over to our President and CEO, John Richels. He will provide his perspective. And then Dave Hager, our Executive Vice President of Exploration and Production, will cover the operating highlights. Following Dave's remarks, Jeff Agosta, our Chief Financial Officer, will finish up with a financial review. We will follow with a Q&A period. And as usual, we'll hold the call to about an hour. Darryl Smette, who is our Senior Vice President of -- Executive Vice President of Marketing and Midstream; sorry, Darryl, and other senior members of management are with us today for the Q&A session. As always, we'll ask each participant on the call to limit his or her questions to one initial inquiry and one follow-up. A replay of the call will be available later today through a link on our Home page, that's www.devonenergy.com.

During the call today, we will make some minor refinements to our forward-looking estimates for items such as production, capital expenditures and our hedge position. But since the revisions are so minor, we're not going to issue a new 8-K. We'll just post the changes to our Guidance page on our website. To find that, just click on the Guidance link found in the Investor Relations section of the Devon website.

Please note that all references in today's call to our plans, forecast, expectations, estimates and so on are forward-looking statements under U.S. securities law. And while many factors could cause our actual results to differ from those estimates, we always strive to give you the very best guidance we can. We encourage you to review a discussion of risk factors if you're so inclined that is provided with our Form 8-K forecast.

We will reference certain non-GAAP performance measures in today's call. When we use these measures, we're required to provide certain related disclosures and those disclosures can also be found on the Devon website.

One final item, while our first quarter cash flow per share significantly beat the consensus estimate, our earnings per share from continuing operations came in about $0.05 shy of consensus. Production was better than expected and our pretax cost per barrel were lower than the midpoint of our guidance. However, our deferred taxes were higher than expected. Total adjusted income tax expense for the quarter or 34% of pretax earnings was 4 percentage points over the midpoint of our guidance.

At this point, I'll turn the call over to our President and CEO, John Richels. John?

John Richels

Thanks, Vince, and good morning, everyone. First quarter of 2011 was really an outstanding one for Devon. Our North American onshore production increased 7% compared to the first quarter of 2010, exceeding the top end of our guidance range. We achieved this year-over-year production growth in spite of first quarter production outages resulting from severe weather. In addition, production growth accelerated as we exited the first quarter. We're very confident that we will deliver on our second quarter 2011 production forecast of 645,000 to 655,000 equivalent barrels per day. This represents an increase of about 3.5% over the first quarter.

We remain on track to deliver on our full year 2000 production forecast of 236 million to 240 million barrels of oil equivalent. And in addition, we expect to shrink our balance sheet with share repurchases and a reduction in net debt. This should drive our 2011 production growth per debt adjusted share to a rate in the mid-teens.

Devon also delivered an excellent first quarter performance from a cost-containment perspective. Continued focus on cost containment, mitigated industry inflation and the impact of the stronger Canadian dollar. As a result, Devon actually saw a decrease in unit cost versus the year-ago quarter.

As Dave is going to discuss later in the call, we continued executing on our North American onshore strategy with excellent results from our key development projects, and we also made some encouraging progress on the exploration front.

In the first quarter, we generated $1.5 billion of cash flow before balance sheet changes. This cash flow from operations and the liquidity provided through our strategic repositioning comfortably funded our capital programs and returned nearly $800 million to our shareholders in the form of stock buybacks and dividends. Of the $3.5 billion authorized per share repurchases in May of 2010, we've now spent about $2.1 billion. We have purchased with that more than 28 million shares or just over 6% of our outstanding shares at an average price of roughly $73 per share. This brings our total shares repurchase since 2004 up to 95 million shares or roughly 20% of our shares outstanding. As we previously indicated, we expect to complete our share repurchase program by year end.

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