Devon Energy’s fourth-quarter earnings
Devon Energy (DVN) is expected to report its fourth-quarter earnings on February 19 after the market closes. The company is expected to report core earnings of $0.31 per diluted share in the quarter based on analysts’ consensus estimate, which would mean a fall of ~52.3% on a sequential basis. Devon Energy’s peers including ConocoPhillips (COP), Occidental Petroleum (OXY), and Pioneer Natural Resources (PXD) reported a fall 16.9%, 29.8%, and 42.9%, respectively, during the quarter. All of these stocks are among the top holdings of the S&P 500 (SPY) in the upstream subsector.
What might cause the earnings to fall?
Devon Energy operates with a production mix of 45% in oil and bitumen. US crude oil active futures have fallen 17% in the last quarter on a sequential basis. Apart from oil’s fall, the average gap between WTI and WCS (Western Canada Select) prices, the benchmark for Devon Energy’s Canadian oil production, has widened 27% during this period. Falling oil prices and the widening WTI-WCS spread might drag Devon Energy’s earnings. Canadian oil accounts for ~43.4% of Devon Energy’s total oil production. Canadian oil contributes ~22.3% to Devon Energy’s total upstream revenues based on the latest results.
So far in the first quarter, the WTI-WCS spread contracted 72% compared to the previous quarter. The spread fell after Alberta’s oil production cut plan on December 2. Since then, Devon Energy has risen 5.4%, while US crude oil prices have risen ~10%. The rise in oil prices and the contraction in the WTI-WCS spread might push Devon Energy’s stock prices.