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Analyzing Devon Energy’s Free Cash Flow Trends

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Devon Energy’s revenues and operating cash flows

For 1Q16, Devon Energy’s (DVN) total operating revenue was ~$2.1 billion, or ~26% lower when compared with 1Q15. The lower operating revenue in 1Q16 was the direct result of lower realized prices for crude oil and natural gas production.

In 1Q16, DVN reported an OCF (operating cash flow) of ~$149 million, which was ~90% lower than its OCF of ~$1.6 billion in 1Q15. The decrease was primarily due to the lower operating revenues.

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Devon Energy’s free cash flow trend

As seen in the above chart, DVN has reported negative free cash flows in 1Q15 and 2Q15, but its free cash flows turned positive in 3Q15 and 4Q15. In 1Q16, DVN reported free cash flow (or FCF) of about -$600 million. Due to the steep downward trend in energy prices, most S&P 500 (SPY) energy companies have reported negative FCF.

Hess Corporation (HES), Southwestern Energy (SWN), ConocoPhillips (COP), and Pioneer Natural Resources (PXD) reported free cash flows in 1Q16 of -$680 million (-$2.27 per share), -$104 million (-$0.27 per share), -$1.4 billion (-$1.13 per share), and -$439 million (-$2.71 per share), respectively.

FCF helps a company to enhance shareholder value. It can be used to pay dividends, buy back stock, or repay debt. FCF is calculated by subtracting capital expenditure (capex) from OCF.

Devon Energy’s capital expenditure

In 1Q16, DVN spent ~$749 million in capital expenditure, which was above its capital expenditure guidance range of $450 million–$525 million, and ~56% lower when compared with 1Q15.

For 1Q16, Devon Energy expects its capital expenditure in the range of $325 million–$405 million. For 2016, Devon Energy expects its capital expenditure to range from $1.2 billion–$1.5 billion, which is ~75% lower when compared with Devon’s capital expenditure of ~$5.3 billion in 2015.

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