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Devon Energy Corporation (DVN)
Q4 2013 Results Earnings Conference Call
February 19, 2014 11:00 AM ET
Vincent White - Senior Vice President, Communications and IR
John Richels - President and CEO
David Hager - Chief Operating Officer
Brian Singer - Goldman Sachs
Evan Calio - Morgan Stanley
Arun Jayaram - Credit Suisse
Charles Meade - Johnson Rice
Previous Statements by DVN
» Devon Energy Corporation Discusses Q4 2013 Results (Webcast)
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» Devon Energy Corporation Discusses Q3 2013 Results (Webcast)
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Thank you, and welcome everyone to Devon's fourth quarter and year-end 2013 earnings call and webcast. Today's call will follow our usual format. I'll cover a few housekeeping items and then turn the call over to our President and CEO, John Richels. John will provide an overview of our 2013 results and his thoughts on the year ahead. And then Dave Hager, our Chief Operating Officer will provide an update on Devon’s operations. Following the operations update, we will turn the call back over to John to finish off our prepared remarks with a review of our financial results and to provide some specific guidance for the upcoming quarter and for the full year 2014. After our financial discussion, as usual we’ll have a Q&A session. We’ll conclude the call after one hour and a replay of the call will be available later today on our website. The Investor Relations team will also be available after the call should we have any additional questions.
On the call today, we’re going to provide forward looking estimates for capital, production, price realizations and other important items for 2014. Later today, we will file a Form 8-K that contains our detailed estimates for the upcoming year. The guidance page of our website will contain a copy of the 8-K along with other significant forward looking estimates that we mention during the call today. To access this guidance, just click on the guidance link found in the Investor Relations section of the Devon website.
The guidance we provide today includes plans, forecasts, expectations and estimates and they are all forward-looking statements under U.S. securities law. These are of course, subject to a number of assumptions, risk and uncertainties, many of which are beyond our control. These statements are not guarantees of future performance. You can see a comprehensive discussion of the risk factors relating to these estimates in our Form 10-K.
Also in today's call, we'll reference certain non-GAAP performance measures. When we use these measures, we're required to provide certain related disclosures. Those can also be found on Devon's website.
At this point, I'll turn the call over to our President and CEO, John Richels.
Thank you, Vince, and good morning, everyone. 2013 was another year of strong execution and exciting change for Devon. Our oil focus drilling programs not only accomplished impressive oil production growth, but also successfully expanded margins and improved our operating cash flow. Additionally, we’ve taken some bold steps in a relatively short period of time to high grade our portfolio and improve Devon’s growth trajectory. We did this through an accretive Eagle Ford at our shale acquisition, an innovative midstream combination and the initiation of an asset divestiture program.
Now let’s briefly recap some of the past year’s highlights in a little more detail. In 2013, we had outstanding success growing U.S. oil production, our highest margin product driven by our development programs in the Permian Basin; we increased our light sweet crude production in the U.S. to 78,000 barrels per day, up 32% compared to 2012. This highly profitable U.S. oil production growth is particularly impressive considering the large base of oil production that we are drilling off, a base that ranks Devon as one of the largest independent oil producers in the U.S.
Our pursuit of oil production resulted in higher revenues and improved profitability as well. In 2013, company-wide oil revenue increased by 23% compared to the previous year and accounted for more than half of our total upstream revenue.
This revenue growth combined with the strong focus on cost containment improved our operating cash flow in 2013 by 10% year-over-year, significantly exceeding Wall Street estimates.
Looking beyond our reported results we also made some exciting portfolio changes at Devon during 2013. In October, we announced the strategic combination of our U.S. midstream assets with Crosstex to form EnLink Midstream. The creation of EnLink greatly improves the diversification, capital efficiency and growth trajectory of our midstream holdings. Additionally, this innovative transaction allowed us to obtain an immediate market-based valuation for the U.S. portion of our midstream business.
At the time of the announcement, Devon contributed assets valued at $4.8 billion. As of yesterday’s closing prices, our ownership interest in EnLink was valued at more than $8.3 billion or roughly a third of Devon’s market capitalization.
The combination is already resulted in an additional $3.5 billion of value or the equivalent of more than $8 per share and we expect additional value to accrue as EnLink grows and develop its assets.
And further significant transaction for us announced in late November was our acquisition of Eagle Ford assets. This transaction allowed us to secure a world-class light oil acreage position in the very best part of the Eagle Ford offering some of the highest rate of return drilling opportunities in North America. We were able to acquire these premier assets in the economic part of the play at a price well below our current EBITDA multiple.