Operating cash flow
In 4Q16, Devon Energy (DVN) reported operating cash flow of $536 million, which is lower by ~50% when compared with cash flow of ~$1.1 billion in 4Q15.
Declining operating cash flow trend
As seen in the above chart, Devon Energy has reported relatively lower operating cash flows beginning in 4Q14, mainly due to lower realized crude oil (USO) and natural gas (UNG) prices. In 1Q15 and 3Q15, DVN’s operating cash flow increased due to a deferred income tax benefit. In 2016, Devon’s operating cash flows dropped further due to decade-low energy prices in 1Q16 and a steep drop in production volumes in 2Q16, 3Q16, and 4Q16. In 1Q16, Devon Energy reported the lowest-ever cash flow of $149 million since 1999.
How DVN plans to increase its operating cash flow
As we have seen in the previous part of this series, Devon Energy is planning to increase its high-margin oil production in 2017. According to Devon Energy’s 4Q16 press release, “This rapid growth in high-margin production, combined with a significantly improved cost structure, positions Devon to deliver peer-leading cash flow expansion at today’s market prices.”
Free cash flow
In 4Q16, Devon Energy spent $671 million in capital expenditure, meaning DVN’s free cash flow is at -$135 million, or ~-$0.26 per share.
Other upstream players
Due to the lower energy prices, most S&P 500 (SPY) (SPX-INDEX) energy companies have reported lower year-over-year cash flows. Southwestern Energy (SWN), EOG Resources (EOG), and Range Resources (RRC) reported $0.36 per share, $1.39 per share, and $0.18 per share, respectively, in cash flows in 3Q16.
Next, we’ll look at how Wall Street analysts have changed their recommendations after DVN’s 4Q16 earnings.