Devon Energy’s Recipe for Success: Strong Operations and Strategic Acquisitions
Devon Energy (NYSE: DVN) is on a roll, with its legacy operations performing exceptionally well. The oil company’s recent third-quarter earnings report showcased its impressive performance, and it expects even better results in the coming quarters.
A Strong Third Quarter
Devon Energy produced an average of 335,000 barrels of oil per day during the third quarter, exceeding its guidance by 4%. Total output averaged 728,000 barrels of oil equivalent per day (BOE/d), a 3% increase from the prior quarter. The company’s Delaware Basin operations were a key driver of this growth, with production increasing by 6% quarter over quarter.
The Grayson Mill Energy Acquisition: A Game-Changer
The recent acquisition of Grayson Mill Energy, which closed in late September, added 5,000 BOE/d to Devon’s quarterly total. This strategic move is expected to fuel higher production and free cash flow in 2025 and beyond.
Financial Performance
Devon generated $1.7 billion of cash flow from operations during the period, an 8% increase from the prior quarter. The company produced $786 million of free cash flow after funding capital expenditures, which it used to return capital to shareholders and strengthen its balance sheet.
Capital Allocation Strategy
Devon used its free cash flow to declare a quarterly dividend of $0.22 per share and complete $295 million of share repurchases. The company has now repurchased $3 billion of stock since launching its current buyback program in late 2021, retiring 6.7% of its outstanding shares. Devon opted not to declare a variable dividend payment during the third quarter, instead using its remaining excess free cash to strengthen its balance sheet by repaying a $472 million debt maturity.
Looking Ahead to 2025
CEO Rick Muncrief stated that the Grayson Mill acquisition marks a major milestone, increasing the company’s operating scale and strengthening its outlook for the fourth quarter and beyond. Devon Energy expects its total production to average around 800,000 BOE/d in 2025, with oil output reaching about 380,000 barrels per day. The company anticipates investing $4 billion-$4.2 billion to maintain and grow its production, representing less than 65% of its projected cash flow from operations.
A Compelling Investment Opportunity
With its strong operational momentum and strategic acquisitions, Devon Energy is well-positioned to deliver strong returns through the cycle. The company’s capital allocation strategy will shift toward debt reduction in the near term, and it will prioritize share repurchases over paying variable dividends due to the current valuation of its stock. At $70 oil, Devon trades at a 9% free-cash-flow yield, making it an attractive oil stock to consider.
Leave a Reply