DEVON ENERGY LOSS $(6.4) BLN
Devon Energy Corp. (NYSE:DVN) today announced core earnings of $320 million, or $0.78 per diluted share, for the second quarter of 2015. This compares with first-quarter 2015 core earnings of $89 million, or $0.22 per diluted share.
"Devon delivered another high-quality performance in the second quarter as we continued to realize significant operational improvements across our portfolio," said Dave Hager, president and CEO. "Our oil-focused drilling programs in North America's best resource plays achieved outstanding well performance, and we made substantial progress reducing well costs and operating expenses. This superior execution contributed to more than 30 percent growth in total oil production year over year and record oil output in the U.S., led by our Eagle Ford and Delaware Basin assets."
"With current industry conditions, we are focused on maintaining flexibility in our capital programs," Hager said. "To ensure this optionality, we have minimal exposure to long-term service contracts, no long-term project commitments and negligible leasehold expiration issues. This allows us to dynamically allocate capital to our highest-returning areas while balancing investment with cash flow. We believe this advantage, combined with our high-quality asset base and strong balance sheet, positions Devon as well as anyone in the E&P space."
On a reported basis, due to a non-cash, full-cost ceiling charge, Devon had a net loss of $2.8 billion, or $6.94 per diluted share, for the second-quarter 2015. This compares with second-quarter 2014 reported net earnings of $675 million, or $1.64 per diluted share.
Oil Production Exceeds Expectations for Fourth Consecutive Quarter
Devon's oil-driven capital program continued to deliver strong results in the second quarter of 2015. Total oil production averaged 270,000 barrels per day, a 32 percent increase compared to the second quarter of 2014. This result surpassed the midpoint of guidance by 5,000 barrels per day, marking the fourth consecutive quarter the Company has exceeded oil production expectations.
The most significant growth came from the Company's U.S. operations, where oil production averaged a record high 172,000 barrels per day. This result was 35 percent higher than the year-ago quarter and exceeded the top end of guidance expectations by 2,000 barrels per day. Growth in U.S. production was largely attributable to the Company's Eagle Ford and Delaware Basin assets. Net production in the Eagle Ford averaged 114,000 Boe per day in the second quarter, a 75 percent increase compared to the second quarter of 2014. In the Delaware Basin, led by outstanding results from the Bone Spring play, production increased to 64,000 Boe per day in the second quarter, a 40 percent increase compared to the year-ago period.
In Canada, net production from the Company's heavy-oil projects reached an average 98,000 barrels of oil per day in the second quarter. Driven by the continued ramp-up of the Jackfish 3 facility, Canadian oil production increased 27 percent compared to the second quarter of 2014. Scheduled maintenance at the Company's Jackfish 1 oil sands project limited production by approximately 11,000 barrels per day in the quarter.
In total, Devon's production averaged 674,000 Boe per day during the second quarter of 2015. This result represents a 9 percent increase compared to the second quarter of 2014, with liquids accounting for 60 percent of the Company's production mix.
Upstream Revenue Increases 18 Percent; Midstream Profit Expands
Revenue from oil, natural gas and natural gas liquids sales totaled $1.6 billion, an 18 percent increase compared to the first quarter of 2015. The revenue growth was attributable to the increase in higher margin U.S. oil production combined with improved oil price realizations. These factors resulted in second-quarter oil sales increasing to more than 70 percent of Devon's total upstream revenues.
Cash settlements related to oil and natural gas hedges increased revenue by nearly $500 million, or $8 per Boe in the second quarter. At the end of June, the Company's remaining commodity hedges had a fair-market value of approximately $850 million. This attractive hedging position represents 55 percent of forecasted oil production and 45 percent of expected natural gas production for the remaining two quarters of 2015.
Devon's midstream operating profit reached $225 million, which exceeded the Company's guidance and was 16 percent higher than the first quarter of 2015. The increase in operating profit was driven by growth from EnLink Midstream.
Cost Reduction Initiatives Delivering Results
The Company has several cost reduction initiatives underway that positively impacted second-quarter results. Field-level operating costs, which includes both lease operating expenses and production taxes, declined 8 percent compared to the second quarter of 2014 to $11.05 per Boe. These cost savings were realized across all regions of Devon's asset portfolio.
Significant general and administrative (G&A) cost savings also were achieved in the second quarter. G&A expenses totaled $212 million, which was below the low end of guidance and a 16 percent decline compared to the first quarter.
Based on year-to-date cost savings, Devon now anticipates its field-level operating costs and G&A to decline to around $14.50 per Boe for the full-year 2015. Compared to original guidance, this implies a full-year cost savings of around $400 million.
Balance Sheet and Liquidity Remain Strong
Operating cash flow in the second quarter, excluding the consolidation of EnLink Midstream, reached $1.0 billion. Combined with the sale of the Victoria Express Pipeline, EnLink secondary offering proceeds and EnLink partnership distributions, Devon's second-quarter cash inflows totaled $1.3 billion.
Devon's financial position remained exceptionally strong with investment-grade credit ratings and cash balances of $1.7 billion at the end of the quarter. The Company's net debt, excluding non-recourse EnLink obligations, totaled $7.6 billion.
Production Outlook on Track; Additional Capital Cost Savings Expected
Detailed forward-looking guidance for the third quarter and full-year 2015 is provided later in the release. Given the strong year-to-date production performance, the Company is well positioned to deliver on its 2015 oil growth target of 25 to 35 percent. Devon also remains on track to increase top-line production by 5 to 10 percent.
The Company expects to achieve these attractive production growth targets with lower capital cost requirements. Since the beginning of the year, Devon has reduced projected 2015 capital spending by approximately $350 million.
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