Devon Energy Corporation (DVN)

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Devon Energy Corporation (DVN)

Q3 2013 Earnings Call

November 6, 2013 11:00 AM ET


Vince White – SVP, Communications

John Richels – President and CEO

David Hager – EVP, Exploration and Production

Jeff Agosta – CFO


Scott Hanold – RBC

Jeffrey Campbell – Tuohy Brothers Investment

Matt Portillo – Tudor, Pickering & Co.

David Tameron – Wells Fargo

Charles Meade – Johnson Rice

Arun Jayaram – Credit Suisse

Mark Hanson – Morningstar

Biju Perincheril – Jefferies & Co.



Welcome to the Devon Energy’s third quarter earnings conference call. (Operator instructions) At this time, I would like to turn the conference over to Mr. Vince White, Senior Vice President of Communications and Investor Relations. Sir, you may begin.

Vince White

Thank you, and welcome everyone to Devon’s third quarter earnings call and webcast. Today’s call will follow our usual format. I’ll cover a few preliminary items, and then turn it over to our President and CEO, John Richels, he will provide comments on the quarter. And then following John’s remarks, Dave Hager, our Chief Operating Officer, will provide the operations update. We’ll wrap up the prepared remarks with a financial review by our CFO, Jeff Agosta. After Jeff’s discussion, we will have a Q&A session and we will conclude the call after about an hour but the investor relations team will be available for the rest of the day for any questions that we don’t get to during the call.

During the call today, we’re going to update some of our forward-looking estimates based on our actual results that we’ve seen over the first nine months of the year and outlook for Q4. While we will not be filing a revised Form 8-K we will post estimates reflecting these adjustments that are provided during the call today on the guidance page of our website. To access that guidance, click on the guidance link, down within the investor relations section of the Devon website.

All references today to our plans, forecasts, expectations, and estimates are forward-looking statements under US securities law. These are subject to a number of assumptions, risks, and uncertainties, many of which are beyond our control. These statements are, of course, not guarantees of future performance. You can see a discussion of the risk factors relating to these estimates in our Form 10-K.

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

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

John Richels

Thank you, Vince, and good morning, everyone. The third quarter was another solid one for Devon, both, operationally and financially as we continued to deliver on our strategic plan. Higher oil production combined with better prices drove significant improvements in our margins, allowing us to comfortably exceed Wall Street expectations for both earnings and cash flow for the quarter. We achieved third quarter US oil production growth of 38% year-over-year, largely driven by success in our Permian Basin development programs.

Over the past two years we have doubled our light oil production in the US to 81,000 barrels per day and by yearend we expect our US light oil production to top 90,000 barrels per day. Most importantly, our success in growing our US light oil production has resulted in higher margins and improved profitability in the current commodity price environment.

Looking beyond the low-risk development projects that are driving today’s growth, we’re also investing in opportunities that will provide the next leg of high margin production growth for Devon. In the US, we’re highly encouraged by the progress we’ve made with our Mississippi and Woodford and our Rockies oil plays, our light oil production in these plays is growing rapidly and it’s currently approaching 20,000 barrels per day. Dave is going to speak to this later on in the call.

We’re also laying the ground work for continued long-term growth with investments in our world-class portfolio of thermal oil projects in Canada. These projects remain on-track to produce at least 150,000 barrels of oil per day by the end of the decade. And this highly visible oil production growth out of Canada will be significant contributor to our long-term success.

Our company-wide focus on oil production is not only delivering volume growth but it’s also improving our revenues and cash margins. In the third quarter, oil revenue increased 19% compared to last quarter, accounting for nearly 60% of our total upstream revenue. This growth in oil revenue has helped increase our cash margin per barrel by 16% year-over-year to its highest level in recent history.

Another contributing factor to our margin expansion has been our ability to effectively control costs. In the third quarter, our upstream cash cost per unit of production remained flat from last quarter. This is noteworthy considering our rapid growth in oil production. At the same time, our focus on capital discipline has resulted in total capital expenditures for 2013 remaining on-track with the full-year guidance we provided at the beginning of the year. And in the third quarter, cash inflows exceeded our capital demands.

On the liquidity front, we exited September with $4.3 billion of cash with the majority of these funds residing in foreign subsidiaries. Our tax position now affords us the opportunity to repatriate an addition $2 billion of cash to the US around year-end at a tax rate in the mid-single-digits; Jeff will speak to this in a little more detail later on in the call.

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