Devon Energy Corporation (DVN)

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Devon Energy (DVN)

Q3 2010 Earnings Call

November 03, 2010 11:00 am ET

Executives

Vincent White - Senior Vice President of Investor Relations

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

Presentation

Operator

Welcome to Devon Energy's Third Quarter 2010 Earnings Conference Call. [Operator Instructions] 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 and good morning, everyone. Welcome to Devon's third quarter 2010 earnings call and webcast. Today's call will follow our usual format. I'll begin with some preliminary housekeeping and compliance items and then our President and CEO, John Richels will provide his perspective. Following John's remarks, Dave Hager, our EVP of Exploration and Production will cover the operating highlights and then finally, following Dave's comments, Jeff Agosta, our Chief Financial Officer, will review our financial results and our outlook. At that point, we'll open the call up to your questions. Our Executive Chairman, Larry Nichols and other senior members of the management team are with us today for the Q&A session. And as a courtesy to the other participants, we ask that each of you limit your questions to one initial inquiry and one follow-up. We'll limit the call to about an hour, and we will be around for the rest of the day to answer questions after the call.

A replay of this call will be available later today through a link on Devon's homepage. During the call today, we will provide some color on some of our forward-looking estimates based on the actual results for the first nine months of the year, and our outlook for the balance of 2011 and 2012. We will not be issuing a revised 8-K today, because our outlook for the remainder of the year falls within the updated ranges we provided in the Form 8-K that we filed last August. To access a comprehensive summary of our current guidance, which includes any refinements we make today, you can go to devonenergy.com and click on the Guidance link found within the Investor Relations section of our website.

Please note that all references today for our plans, forecasts, expectations and estimates, are considered forward-looking statements under U.S. Securities law. And while we always like to provide you with the very best data possible, many factors could cause our actual results to differ from those estimates. You can find a discussion of risk factors related or estimates in the Form 8-K that contains these forecasts. One other compliance note, we'll refer to various non-GAAP performance measures in today's call. When we use these measures, we are required under Securities law to provide certain additional disclosures and those are available for your review on Devon's website.

By now, most of you are aware that our decision to sell our international assets triggered the accounting rules for discontinued operations. We have therefore excluded international production volumes for all periods presented as well as the revenues and expenses associated with those. Those are collapsed into a single line item at the end of the statement of operations. That line item is labeled Discontinued Operations. For those interested in a more detailed view of our international results, you will find an additional table in today's news release that includes a detailed statement of operations and the related production volumes that are attributable to the international properties.

As a reminder, the third quarter is our first reporting period without financial or operating results from the Gulf of Mexico. While the international divestiture properties are considered discontinued operations, the Gulf of Mexico divestiture assets are included in results from continuing operations for previous periods. For that reason, we are providing supplemental information in our press release that isolates the results from Devon's North American Onshore operations or, in other words, the go-forward business.

As far as straight earnings estimates ago, the majority of analysts chose to report estimates to First Call that included only our North American Onshore operations. The mean estimate from those analysts that focused on continuing operations was $1.25 a share for the quarter, that compares to our non-GAAP earnings from continuing operations of $1.31 per share. So our actual results beat the street estimate by $0.06 or about 5%. With those items out of the way, I'll turn the call over to President and CEO John Richels.

John Richels

Thanks, Vince and good morning, everyone. For the third quarter of 2010, Devon delivered another very solid performance both operationally and financially.

Production from our North American Onshore properties totaled 613,000 barrels of oil equivalent per day in the third quarter, a 4% increase over the third quarter of 2009. This production growth was driven by an 11% increase in oil and natural gas liquids production. In the current environment, oil and NGLs now account for roughly half of Devon's total oil gas and NGL sales revenue. Strong realized prices for our oil production and improved cost efficiencies resulting from the repositioning drove our adjusted earnings from continuing operations up more than 40% over the year-ago quarter to $571 million or $1.31 per diluted share.

Cash flow for balance sheet changes climbed 47% over the third quarter of last year and combined with the divestiture proceeds Devon's total cash inflows for the third quarter approached $4 billion, far exceeding our total capital demands for the quarter. As a result, we exited the month of September with an enviable position of $4 billion of cash on hand and a bulletproof balance sheet.

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