Did Devon Energy Generate Positive Free Cash Flow in 3Q17?



Devon Energy’s operating cash flow

For 3Q17, Devon Energy (DVN) reported operating cash flow of ~$776 million, which is higher by ~19% when compared with Wall Street analysts’ expectation for ~$653 million in cash flows for the quarter. On a year-over-year basis, DVN’s 3Q17 operating cash flow is ~7% higher than the ~$726 million it generated in 3Q16. In its 3Q17 press release, DVN attributed the higher cash flows to “improvements in commodity prices and a lower cost structure.”

Devon Energy’s cash flow trend

Devon Energy has reported declining cash flows from 1Q15 to 1Q16 mainly due to lower realized crude oil (USO), natural gas (UNG), and natural gas liquids prices. In 1Q15 and 3Q15, DVN’s cash flow increased due to a deferred income tax benefit. As seen in the above chart, Devon Energy has reported relatively low cash flows in 2016. In 1Q16, Devon Energy reported the lowest ever cash flow of $149 million since 1999 due to lower energy (USL) (BOIL) prices. But since 2Q16, Devon Energy’s cash flows are rising. DVN’s peer ConocoPhillips (COP) reported $1.1 billion in cash flows in 3Q17.

DVN’s free cash flow

In 3Q17, Devon Energy spent ~$735 million in capital expenditures, meaning DVN’s free cash flow was positive at ~$41 million. Free cash flow in 3Q17 increased DVN’s cash balance to ~$2.8 billion.

In 3Q17, Devon Energy’s capital expenditures of ~$735 million were higher by ~75% when compared with DVN’s capital expenditures of $421 million in 3Q16. Out of this, DVN spent $564 million on E&P (exploration and production) development and acquisitions.

Devon Energy’s capital expenditures guidance

For 2017, Devon Energy expects its capital expenditures in a range of $2.2 billion–$2.6 billion. DVN’s fiscal 2017 capital expenditure guidance is much lower when compared with DVN’s 2016 capital expenditures of $3.1 billion. In 2016, DVN sold many non-core assets, which resulted in a reduced capital requirement for 2017. For 4Q17, Devon Energy expects its capital expenditures in a range of $740 million–$815 million.

DVN’s peer Encana (ECA) expects 2017 capital expenditures in the range of $1.6 billion–$1.8 billion, which represents a midpoint increase of ~55% when compared with capital expenditures of ~$1.1 billion in 2016. Just like DVN, ECA is increasing its focus on unconventional assets in the US.

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