Buy-recommended Devon Energy (DVN) offers unlevered appreciation potential of 32% to a McDep Ratio of 1.0 where stock price would equal NPV. Fourth quarter results released on February 17 matched our expectations from three months ago for total unlevered cash flow (Ebitda).
The Jackfish project in Canada accounted for most of a 19% increase in proven reserves after production replacement in 2009. At Jackfish, Devon injects steam into oil sands deposits to produce heavy crude. More recognition of the potential of the project takes weighted reserves of Canadian oil to about 15% of oil-equivalent total. The increase in reserves also boosts oil to 47% of NPV.
Meanwhile, the industry backdrop is helped by the positive trend of six-year oil trading at $85 a barrel compared to the 40-week average of $83. Devon stock also trades above its 200-day average of $65 a share. We believe DVN has the most unlevered appreciation potential among large cap U.S. independent oil and gas producers.
Originally published on February 18, 2010.