Devon Energy Corporation (DVN)

DVN 
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Devon Energy Corporation (DVN)

Q1 2014 Earnings Conference Call

May 7, 2014 11:00 AM ET

Executives

Vince White – VP, Communications and IR

John Richels – President and CEO

Dave Hager – COO

Tom Mitchell – EVP and CFO

Darryl Smette – EVP, Marketing, Facilities, Pipeline and Supply Chain

Analysts

Arun Jayaram – Credit Suisse

Doug Leggate – Bank of America Merrill Lynch

Brian Singer – Goldman Sachs

Subash Chandra – Jefferies & Company

Jeffrey Campbell – Tuohy Brothers Investment Research

Presentation

Operator

Welcome to Devon Energy’s First Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. After the prepared remarks we will conduct a question-and-answer session. The call is being recorded. At this time, I’d 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 everybody to Devon’s First Quarter Earnings Call and Webcast. Before we get started, I want to make sure that everyone is aware that we have prepared a handful of slides to supplement today’s presentation. The slides are integrated with today’s webcast but they’re also available for download in PDF form on Devon’s home page at devonenergy.com. For those that are not participating via webcast, we’ll make sure we refer to slide numbers during our prepared remarks so that you can follow along. Today’s call will follow our usual format and as I will first cover a few preliminary items and then turn the call over to our president and CEO, John Richels, for this comments; then Dave Hager, our chief operating officer will provide an operations update and we’ll wrap up our commentary with a financial review by our CFO, Tom Mitchell.

After our financial discussion, we’ll have a Q&A session and we’ll conclude the call after about an hour and replay will be available later today on our website. The investor relations team will also be available this afternoon should you have any follow-up questions. On the call today, we’re going to update some of our forward looking information. In addition to the updates that we are providing in the call, we will file an 8-K later today containing the details of our updated 2014 estimates. The copy of this updated 8-K will be available within Investor Relations section of the Devon website.

The guidance that we are providing today includes plans, forecast, expectations and estimates which are all considered forward-looking statements under US Securities Law and 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 and for a discussion of the risk factors relating to our estimates see our Form 10-K.

Also in today’s call, we’ll reference certain non-GAAP performance measures. When we use these measures there are required specific related disclosures and those can also be found on our 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. Before we get in to the business of the quarter, I’d like to take just a moment here to welcome our latest edition to Devon’s team of senior executives and that’s our chief financial officer, Tom Mitchell. Many of you already know Tom and you know that Tom brings a wealth of industry experience and considerable financial sophistication and we’re thrilled to have him on board. As Vince already mentioned, you’re going to hear from Tom later on in the call and as you have the opportunity in the coming months to meet with him, please join us in welcoming Tom to Devon. So with that, let’s take a look at our results.

The first quarter was another excellent one for Devon. As shown on slide three, our disciplined focus on high-margin oil development opportunities led to another quarter of outstanding growth in oil production that drove significant operating margin improvements. Additionally, we made meaningful progress in our efforts to high grade our go-forward asset portfolio. This progress was evidenced by the closing of our Eagle Ford acquisition, the completion of the EnLink Midstream combination, our exit from the conventional gas business in Canada, and our recently announced bolt-on [ph] acreage acquisition in Cana.

In addition, we once again raised our dividend during the quarter. Now, let’s take a look at some of the highlights in more detail. In the first quarter, we achieved year-over-year oil product growth of 21% from go-forward asset base reaching an average daily rate of 176,000 barrels per day. As can be seen on slide four, this growth was driven entirely by light sweet crude production from our retained US assets which increased an impressive 56% compared to the first quarter of 2013. With our success in growing high-margin production, we expect oil and natural gas liquids to approach nearly 60% of Devon’s go-forward production mix by year end.

In addition to our robust growth in high-margin oil production, we benefited from the sharp rise in natural gas pricing and improved Canadian heavy oil realizations. This increased first quarter upstream revenue by 42% compared to the first quarter of 2013.

As shown on side five, 67% of our upstream revenue came from liquids. Higher revenues coupled with our low cost structure drove operating margins by more than 50% year over year. Another notable first quarter financial highlight was a 9% increase in Devon’s quarterly cash dividend to $0.24 per share. This is Devon’s 9th dividend increase since 2004 representing an annual compound growth rate of 23%. Our dividend increase reflects Devon’s long-term commitment to returning cash to our shareholders and ultimately underscores the confidence we have in our business.

Read the rest of this transcript for free on seekingalpha.com