Analyzing Devon Energy’s Enterprise Multiple



Devon Energy’s enterprise multiple

In 1Q16, Devon Energy’s (DVN) EV-to-adjusted EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio was ~6.8x. This is slightly lower when compared with DVN’s historical average EV-to-EBITDA ratio of ~5.6x over the last five years.

As seen in the below chart, DVN’s EV-to-EBITDA ratio is higher for 1Q16, which is mainly due to the increased EV and a much steeper fall in EBITDA in the same period.

Among the upstream companies in the S&P 500 (SPY), Occidental Petroleum (OXY), Pioneer Natural Resources (PXD), and Murphy Oil (MUR) have enterprise multiples of ~12x, ~17x, and ~6.9x, respectively.

Devon Energy’s forward EV-to-EBITDA multiple is ~17x, which is higher than its own historical average of 5.6x. For 2016, Wall Street analysts estimate Devon Energy’s EBITDA to be lower by ~60% YoY (year-over-year) at ~$2 billion.

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The enterprise multiple

The EV-to-EBITDA ratio is also called the enterprise multiple. It is more preferred over the PE ratio, especially for upstream companies, because it takes into account a company’s debt. In the enterprise multiple, enterprise value is the sum of market capitalization and market value of debt minus total cash and cash equivalents.

Devon Energy’s proved reserves

On December 31, 2015, the Pioneer Natural Resources’ proved reserves totaled ~2.2 billion boe (barrels of oil equivalent), a decrease of ~572 million boe from December 31, 2014. On December 31, 2015, ~12% of DVN’s proved reserves consisted of crude oil, ~24% of bitumen, ~44% of natural gas, and ~20% of natural gas liquids. Almost 75% of DVN’s proved reserves are located in the United States and the remaining ~25% are in Canada.

According to DVN’s 2015 annual report, the discounted value of its reserve base at the end of 2015 was ~$6.7 billion.


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