Yahoo Finance Devon Energy Corp (DVN) Q1 2024 Earnings Call Transcript Highlights: Surpassing Targets and ...
Production: Q1 average 664,000 BOE per day, 4% above plan.
Well Productivity: 100+ wells online, initial production rates 20% higher year-over-year.
Operating Costs: 3% lower than guidance.
Capital Expenditures: In line with expectations despite accelerated activity.
Free Cash Flow: 15th consecutive quarter of generation, supporting shareholder returns.
2024 Production Target: Increased by 15,000 BOE per day or 2%, now 655,000 to 675,000 BOE per day.
Capital Budget: Maintained at $3.3 billion to $3.6 billion.
Free Cash Flow Yield: Projected at 9%, nearly 3x higher than broader market.
Share Buybacks: Prioritized over variable dividends due to low valuation.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Devon Energy Corp (NYSE:DVN) exceeded first quarter production targets by 4%, averaging 664,000 BOE per day, driven by high-impact wells and improved operational efficiencies.
The company achieved significant well productivity, with new wells performing 20% better than those from the previous year, particularly in the Delaware Basin.
Operational improvements and investments in infrastructure led to eased constraints, allowing for better run times and more efficient production.
Devon Energy Corp (NYSE:DVN) maintained effective cost management, with operating costs 3% lower than guidance and capital expenditures aligned with expectations despite increased activity.
The company raised its full-year 2024 production guidance by 15,000 BOE per day, reflecting confidence in sustained operational performance and well productivity.
Negative Points
Despite overall strong performance, there are ongoing challenges with infrastructure constraints in the Delaware Basin, although improvements are being made.
The company is exposed to fluctuations in commodity prices, which can impact financial performance despite operational efficiencies.
Devon Energy Corp (NYSE:DVN) faces intense competition in the Delaware Basin, requiring continuous investment and innovation to maintain its leading position.
There is a reliance on third-party partnerships for infrastructure development, which could pose risks if these partnerships do not yield expected results.
While the company is managing well under current conditions, there is a potential risk if there is a significant downturn in the energy market or regulatory changes affecting operations.
Q & A Highlights
Q: Could you elaborate on the improvement in the midstream situation in the Delaware Basin and any conservatism built into the second half guide despite 1Q outperformance? A: Jeffrey L. Ritenour, Executive VP & CFO of Devon Energy, explained that the infrastructure spend last year alleviated many gas processing bottlenecks and other challenges, which has significantly improved operational capacity in the Delaware Basin. Regarding the second half of the year, he affirmed confidence in the guidance provided, attributing the operational success across all core areas to the company's robust progress in the first quarter.
Q: Could you provide more details on the returns from the refrac program in the Eagle Ford compared to primary development, and the potential for similar activities in the Bakken? A: Clay M. Gaspar, Executive VP & COO, noted that the refrac program in the Eagle Ford is becoming a core part of operations, showing very encouraging results that compete favorably with new well constructions. He highlighted that the Williston Basin is earlier in the process with mixed results but remains optimistic about future opportunities to enhance value in these prolific basins.
Q: How should we think about the shift towards prioritizing share buybacks over variable dividends in your capital return strategy? A: Jeffrey L. Ritenour emphasized that the decision to focus on share buybacks is based on the underperformance observed in the equity market for Devon's shares and the intrinsic value calculations suggesting significant benefits from buybacks. The company plans to continue this approach, potentially increasing the pace as capital spending moderates later in the year.
Q: What are the expectations for the Matterhorn pipeline and the broader outlook for necessary infrastructure in the Permian Basin? A: Jeffrey L. Ritenour mentioned that the Matterhorn pipeline is expected to come online by the end of the third quarter, which should alleviate some pricing pressures from WAHA. He also hinted at potential future pipeline projects within the next 6 to 12 months, with Devon likely to support these initiatives as it has historically.
Q: Can you discuss the contributions of well productivity, efficiency gains, and easing infrastructure constraints to the outperformance in the Delaware Basin? A: Clay M. Gaspar clarified that approximately 60% of the outperformance was due to exceptional well productivity, about 20% from efficiency gains in completions, and another 20% from improved base production due to eased infrastructure constraints. These factors collectively contributed to the strong operational results in the quarter.
Q: With the current slowdown in the Anadarko Basin due to weak gas prices, what are the plans for this asset in a more favorable price environment? A: Clay M. Gaspar indicated that while current activity is reduced, the partnership with Dow provides flexibility and alignment on accelerating activity if gas prices improve. He emphasized the strategic management of capital to maximize returns and the potential to increase activity in the Anadarko Basin under better market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
