Devon Energy reports 16% oil production increase in Q4 year over year

Oil production from core assets increased 26%, driven by Delaware Basin and Rockies (USA), Jackfish 3 project (Canada)

Devon Energy Corp. today announced core earnings of $319 million, or $0.77 per diluted share for Q4, and a 16 per cent increase in oil production compared to the same quarter in 2014.

On a reported basis, due to non-cash, asset-impairment charges, the Devon had a net loss of $4.5 billion, or $11.12 per diluted share, for the fourth quarter of 2015.

Devon’s (NYSE: DVN) operating cash flow totaled $1.1 billion in the quarter, a 12 per cent increase compared to the fourth quarter of 2014. For the full-year 2015, operating cash flows reached $5.4 billion. Combined with the $761 million of cash received from the sale of EnLink units and asset divestitures, Devon’s total cash inflows reached $6.1 billion for 2015.

Devon’s reported oil production averaged 278,000 barrels per day in the fourth quarter, a 16 per cent increase compared to the fourth quarter of 2014.

Of this amount, 247,000 barrels per day were from the company’s core asset portfolio, where management says investment will be focused going forward. Oil production from these core assets increased 26 per cent year over year, driven by Delaware Basin and Rockies growth in the U.S. and the Jackfish 3 project in Canada.

“Last year was also pivotal for Devon’s portfolio as we continued to sharpen our focus on the very best resource plays in North America,” said Dave Hager, president and CEO in a press release.

“In Dec., we announced material additions to our STACK and Powder River Basin positions, two of the best emerging plays in the U.S., and we announced our intent to divest of $2 billion to $3 billion of non-core E&P properties, as well as our 50 per cent interest in the Access pipeline. These strategic actions will further strengthen our financial position and provide Devon with a resource-rich asset base able to generate differentiating value for many years.”

Overall, net production from Devon’s core assets averaged 571,000 oil-equivalent barrels (Boe) per day during the fourth quarter, representing a 7 per cent increase compared to the fourth quarter of 2014.

With the strong growth in higher-margin production, oil is now the largest component of Devon’s product mix at 43 per cent of total production.

“With the challenging industry conditions, Devon continues to be highly focused on delivering meaningful cost reductions and efficiency gains across our asset portfolio,” said Hager.

“These efforts drove down field-level operating costs nearly $400 million in 2015. Additionally, our drilling programs consistently generated top-tier industry results that exceeded type-curve expectations through higher production rates and rapidly declining capital costs.”

Devon says it maintained its strong balance sheet and liquidity position during the fourth quarter. Pro forma for the closing of the Felix acquisition, which closed in early January, the company had $3.9 billion of liquidity at year end, consisting of $1.5 billion of cash and $2.4 billion of capacity on its senior credit facility.

“Devon’s top priority in 2016 is to protect the balance sheet,” said Hager. “We are tailoring activity to current market conditions and are prepared to adjust capital plans throughout the year to ensure we balance capital investment with cash inflows.”

Hager says Devon will use upstream asset sale proceeds to reduce debt, reduce operating and G&A costs by around $800 million annually, have significant flexibility around its capital program, and reducing its dividend by 75 per cent.

“All these efforts are targeted at strengthening Devon’s financial position to take advantage of our top-tier assets when prices recover,” he said.

Devon exited 2015 with net debt, excluding non-recourse EnLink obligations, totaling $7.7 billion. The company says it has managed its debt-maturity schedule to provide maximum flexibility with near-term liquidity and has no significant debt maturities until December 2018. The weighted-average cost of Devon’s outstanding debt is only 5 per cent.