Devon Energy’s first-quarter earnings report was so strong with $1 billion in net earnings or $1.48 per diluted share that the Oklahoma City-based company announced a 27% increase in its quarterly dividend along with another share buyback plan.
Its production growth in the Delaware Basin drove the first-quarter financial performing as operating cash flow increased 14% to $1.8 billion and the free cash slow reached a record high of $1.3 billion.
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As a result, the first quarter dividend payout increased by 27% to $1.27 a share, the highest in Devon’s history. Further, Devon’s Board of Directors announced an expansion of the share-repurchase authorization by 25% to $2 billion. To date, Devon’s repurchase program has retired 19.1 million shares at a cost of $891 million.
The strong quarterly performance left the company’s balance sheet improved by $354 million to a total of $2.6 billion.
“Devon’s first-quarter performance once again demonstrated the power of our disciplined capital plan, our focus on growing cash margin and the benefits of our differentiated cash-return framework,” said Rick Muncrief, president and CEO.
“Looking ahead, we are unwavering in our commitment to capital discipline and remain focused on delivering the objectives that underpin our current year plan,” Muncrief commented. “Our pursuit of value over volume is further reinforced by the steep backwardation in commodity prices, supply chain constraints and the economic uncertainty arising from recent geopolitical events.”
Devon reported net earnings of $1.0 billion, or $1.48 per diluted share, in the first quarter of 2022. Adjusting for items analysts typically exclude from estimates, the company’s core earnings were $1.88 per diluted share. Operating cash flow totaled $1.8 billion, a 14 percent increase from the prior quarter. This level of cash flow funded all capital requirements and resulted in record-setting free cash flow of $1.3 billion for the quarter.
Based on the first-quarter financial performance, Devon declared a fixed-plus-variable dividend payout of $1.27 per share payable on Jun. 30, 2022. This payout is a 27 percent increase from the previous quarter and includes a $0.11 per share benefit from divestiture contingency payments received in the quarter. The company also expanded its share-repurchase authorization by 25 percent to $2.0 billion.
Production averaged 575,000 oil-equivalent barrels (Boe) per day in the first quarter, with oil accounting for 50 percent of the volume. This performance was driven by the company’s Delaware Basin asset which accounted for nearly 70 percent of total production. Devon estimates that first-quarter production was reduced by 15,000 Boe per day, or 3 percent, due to winter weather curtailments.
The company’s capital activity consisted of 19 operated drilling rigs and 5 completion crews in the quarter. This level of investment resulted in an upstream capital spend of $501 million, which is equivalent to 24 percent of Devon’s full-year budget.
The benefits of an oil-weighted production mix, coupled with low operating costs, expanded field-level cash margins to $49.45 per Boe in the quarter. This represents a 17 percent improvement from the fourth quarter of 2021.
Delaware Basin: Production averaged 394,000 Boe per day, a 27 percent increase from the year ago period. During the quarter, the company brought online 52 development wells diversified across target intervals in the Avalon, Bone Spring and Wolfcamp formations.
Initial 30-day production rates from these highly economic wells averaged 2,800 Boe per day (62 percent oil), with completed well costs remaining extremely low at an average of $7.5 million per well. For the remainder of 2022, Devon plans to operate 14 rigs across its 400,000 net acres in the basin and the company remains on track to bring online approximately 220 new wells for the year. This level of activity represents approximately 70 percent of
the company’s total operating plan for 2022.
Anadarko Basin: Production averaged 75,000 Boe per day, with liquids-rich gas representing 81 percent of the product mix. During the quarter, Devon operated 3 drilling rigs supported by a $100 million drilling carry with Dow.
With this carry-enhanced activity, the company spud 13 wells during the quarter, with initial production from this activity expected in the second half of the year. Overall, Devon plans to bring online approximately 40 new wells in the Anadarko Basin during 2022.
In the Williston Basin, production averaged 48,000 Boe per day. Due to timing of activity, no new wells were brought online during the first quarter. To manage base production, the company plans to bring online 15 to 20 new wells in 2022.
Eagle Ford: First-quarter production averaged 36,000 Boe per day. Capital activity was highlighted by the commencement of production on 8 wells in the volatile oil window of the play. This low-risk development activity resulted in average 30-day
production rates of 3,300 Boe per day. Devon and its partner remain on track to bring online approximately 40 new wells in 2022 in an effort to maintain a consistent production profile throughout the year.
Powder River Basin: Production averaged 18,000 Boe per day (70 percent oil). Devon’s operational focus in 2022 is to optimizem base production and advance its understanding of the emerging Niobrara oil resource opportunity across the company’s 300,000 net acre position in the oil fairway of the play.
As for the remainder of 2022, the company leadership said it will remain committed to a disciplined maintenance capital program.
The company has not made any modifications to its previously announced plan to sustain production in the range of 570,000 to 600,000 Boe per day, with an upstream capital investment of $1.9 billion to $2.2 billion.