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Why Devon Energy Is a Leading E&P Company in North America

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Nov. 28 2016, Updated 8:06 a.m. ET

Current energy price environment

Not long ago, in 2014, crude oil was trading above $100 per barrel. However, in 2016, it’s been struggling to cross above $50 per barrel. This “lower for longer” trend in crude oil prices for the last two years has led WTI crude oil (USO) and natural gas (UNG) (UGAZ) (DGAZ) down by ~58% and 42%, respectively. The trend has also taken its toll on energy producers.

Many upstream companies are predicting that lower and more volatile energy prices will continue. This is not good news for upstream companies, as their operating margins are directly tied to the prices of the underlying commodities that they produce. Many upstream companies like Marathon Oil (MRO), Murphy Oil (MUR), and Denbury Resources (DNR) saw a steep decline in their operating margins in the last two years.

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Devon Energy’s key messages at BOAML energy conference

On November 18, 2016, Devon Energy (DVN) presented at the BOAML (Bank of America Merrill Lynch) Global Energy Conference in Miami. Devon Energy’s chief operating officer, Tony Vaughn, talked about why Devon Energy is a leading E&P company in North America despite the challenging energy price environment. The above chart summarizes the key messages Tony Vaughn outlined.

According to Tony Vaughn, despite the challenging energy price environment, Devon could retain its leading position mainly because of its premier asset locations across North America and its operational focus on the high margin STACK and Delaware Basin coupled with operational excellence and a strong balance sheet. Devon Energy’s premier asset portfolio involves its low-cost core assets in the US and Canada, whereas its operational focus on high margin involves increasing crude oil production. Devon’s operational excellence is the result of a strong focus on operating cost reduction, whereas its strong balance sheet is the result of its 2016 divestiture program.

In this series

In this series, we’ll study Devon Energy’s approach for the current energy price environment, Devon’s operational details and various assets, DVN’s operational excellence by means of reduction in LOE (lease operating expenses), and what Wall Street analysts are saying about Devon Energy.

Let’s start with Devon Energy’s approach to the current energy price environment.

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