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Analyzing Devon Energy's Performance in 2Q17

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Part 4
Analyzing Devon Energy's Performance in 2Q17 PART 4 OF 8

Did Devon Energy Generate Positive Free Cash Flow in 2Q17?

Operating cash flow

For 2Q17, Devon Energy (DVN) reported operating cash flow of $810 million, which is ~32% higher compared to Wall Street analysts’ expectation for $615 million in cash flow. On a YoY (year-over-year) basis, Devon Energy’s 2Q17 cash flow is ~142% higher than ~$335 million in 2Q16.

Did Devon Energy Generate Positive Free Cash Flow in 2Q17?

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Declining operating cash flow

Devon Energy reported lower cash flows from 1Q15 to 1Q16, mainly due to lower realized crude oil (USO), natural gas (UNG), and natural gas liquids prices. In 1Q15 and 3Q15, Devon Energy’s cash flow rose due to a deferred income tax benefit. As you can see in the above chart, Devon Energy reported relatively lower cash flows in 2016. In 1Q16, Devon Energy reported its lowest cash flow of $149 million since 1999 due to lower energy (USO) (UNG) prices. On a sequential basis, Devon Energy’s 2Q17 cash flow is lower compared to ~$834 million in 1Q17.

Free cash flow

In 2Q17, Devon Energy spent $721 million in capital expenditures. Devon Energy’s free cash flow is positive at $89 million or ~$0.17 per share. At the end of 2Q17, Devon Energy’s cash balance was $2.4 billion.

Capital expenditures

In 2Q17, Devon Energy’s capital expenditures were $721 million, which is ~47% higher compared to its capital expenditures of $489 million in 2Q17. Out of $721 million, Devon Energy spent $440 million on its exploration and production business. The remaining amount was spent as capitalized G&A (general and administration) and interest of $73 million, EnLink capital expenditures of $218 million, and other expenditures of $26 million.

For fiscal 2017, Devon Energy expects its capital expenditures to be $2.19 billion–$2.59 billion. Its fiscal 2017 capital expenditure guidance is much lower compared to its fiscal 2016 capital expenditures of $3.11 billion. In fiscal 2016, Devon Energy sold many non-core assets, which resulted in a lower capital requirement for fiscal 2017.

Other upstream players

Energy companies in the S&P 500 ETF (SPY) such as Occidental Petroleum (OXY) and Marathon Oil (MRO) are expected to report $1.60 per share and $1.79 per share, respectively, in cash flows in 2Q17. According to the SPDR S&P500 ETF Trust prospectus, “The Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index.”

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