Oil prices have climbed above $61 US a barrel for the first time in 30 months, and this stock has put itself in a strong position to benefit.
The company’s decision to focus on its core properties, and sell off less important assets, appears to be paying off. While its output was down in the latest quarter, earnings jumped on higher prices and lower costs. And its shares have been climbing steadily.
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DEVON ENERGY CORP. (New York symbol DVN; www.dvn.com) is one of the largest explorers and producers of oil and natural gas in the U.S. The production mix for the company’s 19,000 wells is 62% oil and 38% natural gas. The company focuses on four core areas in Oklahoma and West Texas. It also has several heavy oil projects in Eastern Alberta.
Much of its natural gas production comes from the Barnett Shale in North Texas, the first place shale gas was produced in North America and still one of the largest fields on the continent.
Devon’s output averaged 527,000 barrels of oil equivalent per day (both oil and gas) for the third quarter, ended September 30, 2017. That’s down 8.7% from 577,000 a year earlier.
However, cash flow per share jumped 29.2%, to $1.46 from $1.13. The gain was mostly due to higher realized oil and gas prices and much lower costs.
Energy stocks: Company to spend $2 to $2.5 billion on exploration in 2018
The company’s long-term debt of $10.4 billion is a somewhat high 51% of its market cap, although none of that is due before 2021. However, Devon also holds $2.8 billion in cash. In addition, it plans to raise another $580 million by selling non-core assets.
Devon will, however, retain what it sees as the best of its properties. That tighter focus lets the company cut its workforce and improve efficiency. It’s also key to Devon’s future success.
The cost cuts and strengthening balance sheet will let the company spend $2.0 billion to $2.5 billion on exploration and development in 2018. To maximize that spending, Devon’s drilling rigs will focus on its high-return wells in Oklahoma and West Texas.
Production cutbacks by OPEC and Russia, supply disruptions and an unexpected drop in U.S. production have generated an upward trend in oil prices. And Devon Energy has seen its shares climb by 20.2% in the past three months.
Recommendation in Stock Pickers Digest: Devon Energy is a buy.
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