Written by Summary
Devon Energy is one of the largest independent E&Ps in the United States, possessing operations in most major hydrocarbon basins.
The company is one of the few independents that is planning to increase its production while still growing its FCF.
This growing FCF is allowing the company to undertake a variety of things meant to increase its shareholder rewards.
The company has a reasonable balance sheet and an incredibly attractive valuation relative to its peers.
Devon Energy could very easily be worth considering as an energy investment for your portfolio.
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Joey Ingelhart/E+ via Getty Images Devon Energy Corporation ( DVN ) is one of the largest independent exploration and production companies operating in the various shale basins throughout the United States. As is the case with many of the company’s peers, Devon Energy’s stock has certainly given investors something of a wild ride over the past few years, which was largely driven by the commodity price volatility that we saw following the outbreak of the coronavirus. The pandemic naturally crushed the demand for crude oil, but fortunately, it has since rebounded along with the price for the commodity. Devon Energy’s stock price surged in response, climbing a remarkable 165.23% over the past year. There are certainly some reasons to still believe in the stock though, especially given the improvements that the company has made to its business model over the past year. About Devon Energy
As stated in the introduction, Devon Energy is one of the largest independent exploration and production companies in the United States. As befits such a large company, Devon Energy has operations in most of the major basins in which hydrocarbons are produced, although its largest operations by far are in the Delaware Basin: Devon Energy Investor Presentation The Delaware Basin is certain to be familiar to most readers who are familiar with the energy industry because it has been the focal point of the shale oil boom over the past decade or so. This makes a great deal of sense because it is by far the richest source of crude oil in the United States and one of the richest in the world. The basin has been producing hydrocarbons for about a century, but the Energy Information Administration projects that it still has proven reserves of eight billion barrels of crude oil and 27 trillion cubic feet of natural gas. Devon Energy currently owns about 400,000 net acres in the region from which it is producing about 409,000 barrels of oil equivalents per day: Devon Energy Investor Presentation As with most basins in the United States, the Delaware Basin produces both crude oil and natural gas. Devon Energy likewise produces both resources as well but it is most heavily weighted toward crude oil. About 50% of the company’s production consists of crude oil and 24% is natural gas liquids. The remainder of the company’s production is natural gas. This is a product mix that would have been incredibly appealing a few years ago when crude oil prices were quite high relative to natural gas (natural gas liquids typically trade relatively in line with crude oil prices). Today, however, both crude oil and natural gas prices are quite high. In addition, as we will see later, the fundamentals for natural gas are stronger than for crude oil. Thus, it may at first appear that the company would be better off with a heavier weighting toward gas but fortunately, natural gas liquids have similar fundamentals as natural gas. Overall, the company’s balance between the substances certainly seems reasonable and allows Devon Energy to take advantage of the best of both worlds.
In a previous article , I stated that the shale energy industry has changed its business model considerably since the coronavirus outbreak caused oil prices to crash. Prior to the crisis, shale companies were basically focused on growing production at all costs. This is an incredibly expensive proposition due to one of the biggest problems with shale oil production. A shale well’s production of hydrocarbons declines incredibly quickly after the well is first drilled, with a well’s output possibly declining as much as 90% in the first two years: Econbrowser.com This problem forces shale companies to continually drill new wells in order to maintain production, let alone grow it. the expense of this is one of the reasons why the shale industry has […]
source Devon Energy: Free Cash Flow Focus And Growth Are Excellent For Investors
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