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The Top 5 Movers and Shakers of the Upstream Sector

PART:
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Part 3
The Top 5 Movers and Shakers of the Upstream Sector PART 3 OF 9

Can Devon Energy Meet Its 2017 Production Goal?

Devon’s revenues

Devon Energy’s (DVN) revenues were volatile between 2Q15 and 2Q17. In 2Q17, its revenues were ~$3.3 billion compared to $2.5 billion in 2Q16, a 32.0% rise. On a sequential basis, DVN’s 2Q17 revenue fell 7.0%.

Can Devon Energy Meet Its 2017 Production Goal?

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2Q17 revenue drivers

Devon Energy’s oil, gas, and natural gas liquids sales revenue in 2Q17 was $1.2 billion, a 11.0% rise YoY (year-over-year). However, the YoY rise was mainly driven by its Marketing and Midstream revenues, which rose 25.0% YoY.

DVN’s 10-Q quarterly report noted that the increase in its Marketing and Midstream segment was primarily due to an increase in throughput volumes related to its natural gas processing and transmission activities at EnLink Midstream Partners (ENLK). The MLP was created by Devon and Crosstex Energy in 2014.

2Q17 production volumes

DVN’s production in 2Q17 was 536.0 Mboepd (thousand barrels of oil equivalent per day) compared to 644.0 Mboepd in 2Q16. As we noted, 2Q17 revenues were higher despite lower production due to higher realized prices. DVN’s total average realized prices rose from $17.97 in 2Q16 per boe (barrel of oil equivalent) to $24.94 per boe in 2Q17.

2017 production forecasts

DVN’s 3Q17 production guidance is 536.0 Mboepd at the midpoint, and its 4Q17 production guidance is 550.0 Mboepd.

In its 2Q17 earnings release, Devon noted that as a result of increased activity levels in the second half of 2017, the company expects to exit the year at a growth rate of 18.0%–23.0% compared to 4Q16.

DVN’s 2Q17 earnings release noted that strong production growth would be driven by its capital spending in the STACK1 and the Delaware Basin. The company has allocated 90.0% of its US rig activity to those regions this year. DVN’s press release noted, “Combined, these two franchise growth assets are expected to advance production by greater than 30 percent by the end of 2017 compared to the same period a year ago. With this strong growth in higher-margin production, liquids volumes are now projected to reach approximately 65 percent of Devon’s product mix by year-end.”

The high production forecast likely explains higher 4Q17 revenue forecasts by Wall Street analysts (see above chart) along with an improving crude oil price environment.

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