Crude oil prices are in a downtrend
The lower-for-longer trend in crude oil prices (USO) for the last two years has not only seen the value of crude oil fall by ~65% but also taken its toll on crude oil producers. When crude oil prices are falling, profit margins for producers are adversely affected, and their stock prices fall along with crude oil prices.
Devon Energy (DVN) is no exception to this. The company has seen its stock price fall by ~64% since the peak in crude oil prices in June 2014.
Other producers such as Pioneer Natural Resources (PXD), EOG Resources (EOG), ConocoPhillips (COP), and Southwestern Energy (SWN) saw their share prices fall by ~40%, ~39%, ~51%, and ~84%, respectively, during the same period.
The volatility in oil prices also impacts ETFs and ETNs such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Vanguard Energy ETF (VDE), and the VelocityShares 3x Long Crude Oil ETN (UWTI).
As seen in the above chart, DVN’s stock price is in a downtrend in which it’s making a clear pattern of lower highs and lower lows. In the first phase of crude oil’s price decline, DVN outperformed crude oil. However, DVN fell more than crude oil in the second phase of the decline as the realization of lower-for-longer set in.
The downtrend caused DVN’s stock price break below its 200-day moving average in September 2014. Since then, DVN has tried and failed to stay above its 200-day moving average. Currently, DVN’s stock is below its 200-day moving average by almost 32%.
DVN’s 4Q15 earnings
In 4Q15, excluding one-time items, DVN reported earnings of $0.77 per share, $0.06 better than analysts’ consensus estimate for earnings of $0.71 per share. Due to lower realized crude oil prices, DVN’s revenue fell ~52% year-over-year to ~$2.9 billion.
In this series
What do these headline numbers mean? Are they good or bad for DVN? Why is DVN’s stock price below its 200-day moving average? We’ll try to answer these questions throughout this series by studying DVN’s earnings, past events, various fundamental ratios, and key drivers.
Let’s start with Devon Energy’s 4Q15 earnings call.