uploads///DVN Q Post Production

What Production Strategies Does Devon Energy Employ?

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May. 4 2016, Published 3:48 p.m. ET

Devon Energy’s 1Q16 operational performance

For 1Q16, Devon Energy (DVN) reported total production of 685 MBoepd (thousand barrels of oil equivalent per day), which was at the higher end of its 1Q16 production guidance range of 657–693 MBoepd.

Devon Energy’s 1Q16 total production was the almost same compared to its 1Q15 production. Its 1Q16 total production was ~1% higher compared to 4Q15.

According to Devon Energy’s 1Q16 operations report, its 1Q16 total production was mainly driven by its core assets, in which DVN reported production of ~581 MBoepd, ~10% higher than in 1Q15.

Devon Energy’s core assets include its assets in the Delaware Basin, the Eagle Ford Shale, the Barnett Shale, the Rockies, the STACK in Oklahoma, and heavy oil assets in Canada.

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Other upstream companies such as CONSOL Energy (CNX) and Southwestern Energy (SWN) have reported ~36% and ~2% year-over-year (or YoY) rises in their 1Q16 production volumes, respectively. EOG Resources (EOG) and Energen (EGN) are expecting falls of ~9% and ~24% YoY, respectively, in their 1Q16 production volumes.

The Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares ETF (GUSH) is a leveraged ETF that invests in oil and gas exploration and production companies.

Devon Energy’s production mix strategy

For 1Q16, DVN reported crude oil (USO) (UWTI) (DWTI) (USL) production of 285 MBoepd, natural gas liquids production of 137 MBoepd, and natural gas (UNG) (UGAZ) (DGAZ) production of 1,581 MMcf (million cubic feet) per day.

Compared to 1Q15, Devon Energy’s 1Q16 crude oil production rose by ~5%, whereas its natural gas liquids production and natural gas production fell by ~1% and ~4%, respectively.

Higher crude oil production in 1Q16 helped Devon Energy to increase the crude oil percentage in its production mix to ~44% from ~40% in 1Q15. Crude oil is the highest-margin product for Devon Energy.

Other upstream companies such as EOG Resources and Energen have ~49% and ~60% crude oil in their 4Q15 production mixes, respectively. Consol Energy (CNX) and Southwestern Energy (SWN) are mainly natural gas producers and contain only ~3% and ~2% crude oil in their production mixes, respectively.

Devon Energy’s production guidance

Based on its strong 1Q16 production performance, Devon Energy has raised the midpoint of its 2016 production guidance by 15 MBoepd, or ~3%.

Based on this new guidance, the midpoint of 2016 production estimates is ~630 MBoepd. Devon Energy expects to deliver increased production without additional capital spending.

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