With about $40 billion in market value, Devon Energy (NYSE:DVN) is a sizable energy corporation with a concentration in the United States.
The company just released 2Q 2022 numbers, and it was a huge quarter with outstanding results. Through investments and acreage trading, the corporation strengthened its asset position. Here is a closer look at what is happening at Devon Energy.
Devon Energy is assembling a distinctive and extraordinarily robust portfolio of assets.
The company’s land is located in some of the best resource plays in the United States. The Delaware Basin, which accounts for around 75% of the company’s output, is the main focus of the company’s acreage. The business recently successfully acquired RIROCK for $685 million at a valuation of just 2.2 times cash flow. The deal just recently closed.
With a significant resource upside, the company has low-risk development inventory for more than 10 years. Although the company is strongly exposed to the price of commodities, it is concentrating on a low break-even to continue generating shareholder returns at a range of prices.
The corporation has made some wise decisions, like increasing its emphasis on acreage trading.
The business has kept up its practice of opportunistically “trading” acreage, an industry-standard method that helps operators better match their acreage and operations. The “Stateline Area trade,” consisting of 3000 acres traded in good alignment with the company’s legacy acreage in the area, was the company’s top acreage transaction.
The trading doesn’t cost the corporation anything, but as the acreage has lined up, it has given the company access to more than 200 more extended-reach drilling locations. The company’s cost per barrel produced from its current wells is also reduced via longer laterals. Most businesses take advantage of that trading, but Devon Energy has continued to perform well in that area.
Additionally, the business made a wise acquisition in the Williston Basin.
With this deal, the company’s acreage in the Williston Basin increases from 85,000 to 123,000. The purchase increases the company’s drilling locations by more than 100 and enables the company to increase its inventory to the point where production can continue.
The business anticipates that the pro forma combination will increase the oil mix to 70% from 67 percent and double the number of gross wells coming online in 2022e.
The business produced extraordinarily impressive results that will permit higher shareholder returns.
EBITDAX climbed to more than $10 billion yearly, while the corporation raised earnings by 38% YoY to $2.59 per share. Leverage decreased significantly (37% YoY) to 0.4x.
The FCF is above $2 billion a quarter, up a staggering 62 percent year over year. The company’s distribution policy has made it possible for the dividend to grow by more than 200 percent annually.
At the current pricing environment, Devon Energy has the potential to generate enormous shareholder returns.
In a market where WTI is almost $94 per share, the company has significant FCF potential. Currently, the company’s FCF yield is around 16 percent. 75 percent of the company’s budget has been set aside for share buybacks, which translates to a shareholder yield of almost 12 percent. The company expects its fixed + variable dividend yield to be greater than 8%.
A $2 billion share repurchase program is also active at the corporation. That would be enough to repurchase 5% of the company’s outstanding shares, although the average price has been significantly lower than the share price right now. Although the firm has permission through May 2023, with $8 billion in FCF from 2022e, we anticipate it to exceed expectations.
The corporation currently owes $4.5 billion in debt, which it can easily handle with just a few hundred million dollars in interest payments each year.
The Bottom Line
Thanks to its wise investments and acreage trading everything, Devon Energy is in a solid financial position and could make an excellent addition to investors’ portfolios.
Featured Image: Megapixl @4kclips