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Devon’s Stock Continues Downward Spiral before 4Q15 Earnings

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Devon’s stock performance

Barring a brief upswing in the October-December period, Devon Energy’s (DVN) stock has mostly been declining since May 2015. The descent particularly accelerated in early December after crude oil prices started spiraling lower, and fell below $40 per barrel in December and below $30 in January 2016. As you can see below, this hasn’t served Devon’s stock well.

While crude oil prices have recovered from their sub-$30 levels, DVN’s stock continues to fall. Year-over-year, DVN fell by ~54%. Crude oil prices have fallen ~32% in the same period.

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Key objectives in 2015

One of Devon Energy’s key objectives in 2015 was streamlining its portfolio of assets and focusing more on its core areas. In December 2015, the company had announced its intentions to acquire an oil-focused leasehold in the Anadarko Basin’s STACK play and the Powder River Basin.

In a related transaction, Devon’s midstream arm, EnLink Midstream Partners (ENLK), agreed to acquire Tall Oak Midstream. Tall Oak’s gathering and processing assets service the core area of the STACK play. You can read more about the deal in Devon Energy Announces Acquisitions to Strengthen Oil-Rich Assets.

Devon’s management comments

Devon CEO, David Hager, remarked, “These acquisitions materially core up our position in two of the best emerging North America development oil plays and further upgrade our asset portfolio.”

The above acquisitions make Devon Energy more leveraged towards crude oil. While this could pay off if prices recover, it could also become a concern if low prices continue to persist.

Other oil-heavy peers include Newfield Exploration (NFX), which also has operations in the STACK play, Marathon Oil (MRO), and Hess (HES). All these companies make up ~4% of the Energy Select Sector SPDR ETF (XLE).

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