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Devon Energy Corp Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The company is well positioned for the future.
- The company delivered outsized returns to its shareholders for the fifth quarter in a row.
- The company had an outstanding quarter from a capital perspective, driven by the good work of the Delaware team and lower work over costs combined with higher volumes.
- The company expects to invest $3.9 billion, or $200 million lower than the soft guidance provided in November, and expects these improvements to drive more than $300 million in additional FCF this year.
- The company produced record volumes, delivered 154% proved replacement reserve replacement ratio, and made nice strides on continuing its resource assessment of existing assets.
- Productivity is expected to come down a little bit over time.
- The company is cautious about extrapolating the fourth quarter runway - run rate.
- Productivity on a per gross well basis is down.
- The company expects to deliver 815,000 Boe per day, including 383,000 barrels of oil per day.
- The company expects to invest $3.9 billion, or $200 million lower than the soft guidance provided in November.
- The company expects to generate more than $300 million in additional free cash flow in 2024.
- The company expects to reduce debt by $2.5 billion.
- The company expects increased demand for gas in the southeast, as the need for power moves higher in this growing region of the country.
Q&A Highlights from Devon Energy Corp Earnings Call Q4 2024
- Analyst asked about the background of the asset split between Devon Energy and BPX Energy.
- Devon Energy and BPX Energy agreed to a win-win opportunity where each company valued different assets more than the other. This allowed for mutual accretion and the ability to control pace and direct operations. Devon Energy has already seen material operational improvement since taking over the rig, with one well down and another well on pace, yielding over $2 million per well and value creation.
- Devon Energy and BPX Energy agreed to a win-win opportunity where each company valued different assets more than the other. This allowed for mutual accretion and the ability to control pace and direct operations. Devon Energy has already seen material operational improvement since taking over the rig, with one well down and another well on pace, yielding over $2 million per well and value creation.
- Analyst asked about the dissolution of the partnership in the Eagle Ford and the uplift in value it brings.
- The dissolution of the partnership in the Eagle Ford makes sense due to the value creation for Devon Energy. The company saved $2 million-plus per well off the top, which is roughly $2 million of NPV per well. Controlling the pace is also valuable, as the company can drill wells in seven days and back off when necessary. The company is excited about the "magic rock" and the opportunities it continues to yield. The dissolution is a mutual win-win, and both companies can benefit from the changing opportunities, evaluations, technology, and motivations.
- The dissolution of the partnership in the Eagle Ford makes sense due to the value creation for Devon Energy. The company saved $2 million-plus per well off the top, which is roughly $2 million of NPV per well. Controlling the pace is also valuable, as the company can drill wells in seven days and back off when necessary. The company is excited about the "magic rock" and the opportunities it continues to yield. The dissolution is a mutual win-win, and both companies can benefit from the changing opportunities, evaluations, technology, and motivations.
- Analyst asked about the company's plan to return cash to shareholders, specifically regarding the use of buybacks and the balance sheet.
- The company plans to return cash to shareholders through a combination of buybacks and dividends. The company's $3 billion free cash flow projection suggests that it will return between 53% to 60% of its free cash flow, but this number is subject to change as the company evaluates its efficiency improvements. The company also plans to pay down debt, with a target of $2.5 billion, which could potentially increase its ability to return cash to shareholders.
- The company plans to return cash to shareholders through a combination of buybacks and dividends. The company's $3 billion free cash flow projection suggests that it will return between 53% to 60% of its free cash flow, but this number is subject to change as the company evaluates its efficiency improvements. The company also plans to pay down debt, with a target of $2.5 billion, which could potentially increase its ability to return cash to shareholders.
- Analyst asked about the cost savings that the company expects to achieve by dissolving the JV with BP (00:32:13).
- The company expects to save $2 million per well by dissolving the JV with BP, as it will have more control over its operations and be able to optimize its drilling and completion processes. The company has already seen improvement in its operations after the Validus deal, and is confident in its ability to achieve these cost savings. Additionally, the company will have more flexibility in its activity levels, which it sees as a value creator.
- The company expects to save $2 million per well by dissolving the JV with BP, as it will have more control over its operations and be able to optimize its drilling and completion processes. The company has already seen improvement in its operations after the Validus deal, and is confident in its ability to achieve these cost savings. Additionally, the company will have more flexibility in its activity levels, which it sees as a value creator.
- Analyst asked about the impact of Trump tariffs on the company's capital expenditure guidance.
- The company has done some work with their supply chain team to understand the potential impact of Trump tariffs on their capital program. They have estimated that the impact would be less than 2% of their overall capital program for the year, assuming that all the tariffs are in place today and carried forward into the future. The company views the impact as minor and doesn't expect it to have a significant impact on their overall capital program.
- The company has done some work with their supply chain team to understand the potential impact of Trump tariffs on their capital program. They have estimated that the impact would be less than 2% of their overall capital program for the year, assuming that all the tariffs are in place today and carried forward into the future. The company views the impact as minor and doesn't expect it to have a significant impact on their overall capital program.
- Analyst asked about the changes in the company's 2025 capital plan and what specifically led to the lower guidance.
- The company has made progress in reducing their costs, including a $600,000 per well improvement in the Williston basin and the BPX dissolution. They have also seen operational efficiencies in 2024 that they expect to continue in 2025. The company has not baked in any additional deflation or contract terms, and they assume a little bit of status quo in terms of inflation/deflation. They feel good about their 2025 guidance and are confident in their ability to manage costs and improve efficiencies.
- The company has made progress in reducing their costs, including a $600,000 per well improvement in the Williston basin and the BPX dissolution. They have also seen operational efficiencies in 2024 that they expect to continue in 2025. The company has not baked in any additional deflation or contract terms, and they assume a little bit of status quo in terms of inflation/deflation. They feel good about their 2025 guidance and are confident in their ability to manage costs and improve efficiencies.
- Analyst asked about the number of frac crews that the 2025 plan assumes, given the six frac crews the company ran in Q4.
- The company plans to have three consistent frac crews in the Delaware, with a potential of adding a spot crew here and there, as well as two to three other frac crews depending on how they count them. The company estimates the total number of frac crews to be around six.
- The company plans to have three consistent frac crews in the Delaware, with a potential of adding a spot crew here and there, as well as two to three other frac crews depending on how they count them. The company estimates the total number of frac crews to be around six.
- Analyst asked about the company's decision to allocate $2 billion to the share buyback program rather than targeting the balance sheet.
- The company's priority is to maintain its strong investment grade position, which is why it allocates 30% of its free cash flow to the balance sheet. However, the company also recognizes the importance of delivering cash returns to shareholders, which is why it has a growing fixed dividend and a share repurchase program. The company feels good about the value proposition it's delivering to shareholders and plans to continue executing on this strategy.
- The company's priority is to maintain its strong investment grade position, which is why it allocates 30% of its free cash flow to the balance sheet. However, the company also recognizes the importance of delivering cash returns to shareholders, which is why it has a growing fixed dividend and a share repurchase program. The company feels good about the value proposition it's delivering to shareholders and plans to continue executing on this strategy.
- Analyst asked about the company's program in 2024 and how it will impact 2025, specifically regarding the Permian Basin and the oil cut.
- The company's program made up a significant portion of the company's total program in 2024, and the team is continuing to learn and improve their approach to development. The company is moving from 10% to 30% allocation of its total program in 2025, and the oil mix will be consistent, around 47% in the Delaware Basin.
- The company's program made up a significant portion of the company's total program in 2024, and the team is continuing to learn and improve their approach to development. The company is moving from 10% to 30% allocation of its total program in 2025, and the oil mix will be consistent, around 47% in the Delaware Basin.
- Analyst asked about the company's CapEx spending and the number of wells coming on stream, specifically regarding the cadence throughout the year.
- The company does not have a specific cadence for CapEx spending or the number of wells coming on stream, as it depends on various factors such as market conditions, operational performance, and other business considerations.
- The company does not have a specific cadence for CapEx spending or the number of wells coming on stream, as it depends on various factors such as market conditions, operational performance, and other business considerations.
