Devon Energy Corporation (DVN)

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Devon Energy Corp (DVN)

UBS Global Oil and Gas Conference Call

May 21, 2014 11:00 AM ET


David A. Hager – Chief Operating Officer


William A. Featherston – UBS Securities LLC


William A. Featherston – UBS Securities LLC

Okay. We’re going to move on to our next presentation. I’m pleased to introduce from Devon Energy are Dave Hager, who is Chief Operating Officer. Dave?

David A. Hager

Thanks, Bill. Good morning, everyone. It’s pleasure to be with you today at UBS Conference. Of course, I’m obligated to say the actual – I’m going to give you some forward-looking estimates and the actual results may differ and the details can be found in our SEC filings.

Before I get going here, I would like to do one thing want to introduce somebody to you, many of you who know already, we have Howard Thill has joined the Devon Company here organization as the Head of our Communications and Investor Relations Group, so Howard, if you want to standup a real quick. Howard has a longtime career with Marathon. Many of you know him from there. He is going to be taking Vince White place, who has been with Devon for many, many years. And Vince has finally decided to actually retire, I believe and he is going to do that mid-summer, and we’re really glad to have Howard on Board.

So with that, let’s move into the presentation. Lot of exciting things have been going on here at Devon in the past year or so. And we have – we feel really successfully transformed the company. We are now focused on five core areas within the company, three of which are more oily oriented, those would be the heavy oil up in Canada, the Permian, and then the Eagle Ford, which we have recently acquired through our GeoSouthern transaction.

Then we also have two liquids-rich areas that are generating very strong cash flows currently, and they have significant natural gas optionality, those would be our Anadarko Basin assets and our Barnett Shale assets.

Then finally, we have two emerging areas within the company. Areas that we’re currently drilling, they have the potential to grow into the scale of a core area, but we’re still in the appraisals and early development stages in those areas and those were in the Mississippian Woodford and in the Rockies.

In addition to that, we have a very strong midstream presence. We’ve recently done a transaction that generate a new company along with Crosstex named EnLink, very proud of that transaction. And our value in that transaction is currently about $7.5 billion at current market prices.

So when you put it all together, this is a platform that has significant scale in each of our core areas and provides a platform from which we can grow particularly on the oil side significantly for many years in the future. And I will show you some more details around that.

If you look at some of the highlights of what we talked about at our first quarter call a couple weeks ago, start off very strong oil production growth year-over-year on our go-forward asset base. You can see that U.S. oil production grew 56% year-over-year. This was really driven primarily to the growth in the Permian Basin particularly in the Delaware Basin, as well as we got one-month benefit of the Eagle Ford production acquired through our GeoSouthern transaction. So commensurate with the oil production growth, we’re also obviously seeing very strong growth in our operating margins, so very similar growth there, 54% growth year-over-year on our operating margins.

Another significant point I think is, there have been some question marks, okay, you’ve got this Eagle Ford transaction, what next? What after that, after you drill up that inventory? I think we went a long way in the first quarter call and we’ve been talking about how we are – how our internal inventory is growing as well.

We added 5,000 risk locations to the inventory in the description that we described over the on the first quarter call. The bulk of those locations were added in the Delaware Basin, particularly in the Bone Springs, but also the addition of our Eagle Ford, Cana and Cana oil of new completion technique, as well as in the Rockies, Powder River Basin and specifically the Parkman, where we added, we now say we have a 1,000 locations in the Rockies, 700 of which are in the Parkman.

So we are with our new asset base have a platform from which we can grow for many years and the depth of our inventory that we will describe it in each of these core areas continues to grow. As part of this transaction also, our transformation really is, we have monetized our Canadian natural gas position very attractive prices, and then we have some additional monetizations on the U.S. side they were in the process of working on.

We did have an acquisition where we acquired 50,000 acres in the Cana-Woodford Play. We split an acquisition 50-50 with Cimarex of the QEP interest, and that was really driven by the improved results we are seeing there with revised completion techniques. I will give you a little bit more detail on that later on in the call, but all are really exciting first quarter.

This slide simply highlights where we stand in the divestment process. If you look at we divested a Canadian conventional for about seven times or 2013 EBITDA. So we’re not only transforming the company, we’re transforming the company in a value adding lay, in other words, we are able to sell this asset at a multiple that exceeds our overall multiple as a company.

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