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Devon Energy’s Announcement Could Boost Investor Confidence

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Management’s decision

Yesterday, Devon Energy (DVN) announced a restructuring plan to separate its Canadian and Barnett Shale upstream assets by the end of this year. This news could be a big boost for Devon’s stock and earnings. In the last quarter, the expanding WTI-WCS (Western Canada Select) spread dragged down DVN stock.

Oil production in the Barnett Shale has the sixth-highest break-even costs among the 50 top offshore and shale projects, according to RS Energy Group. The Delaware Basin has the lowest break-even costs for oil production, whereas the Powder River Basin has the highest.

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Devon’s earnings

Yesterday, Devon Energy also reported its fourth-quarter results. During the quarter, Devon Energy’s core earnings per diluted share fell 84.6% sequentially to $0.10. Meanwhile, ConocoPhillips’s (COP), Occidental Petroleum’s (OXY), and Pioneer Natural Resources’ (PXD) EPS fell 16.9%, 29.8%, and 42.9%, respectively. All of these stocks are among the S&P 500’s (SPY) top upstream holdings.

Additionally, Devon’s heavy oil produced in Canada had a realized price of -$2.49 per barrel in the fourth quarter, dragging down its overall oil realized price (including cash settlements) by 27.1% sequentially to $34.58 per barrel. The WTI-WCS spread, the benchmark for Devon’s Canadian oil production, widened 27% sequentially.

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