Buy-recommended Devon Energy (DVN) offers unlevered appreciation potential of 27% to a McDep Ratio of 1.0, where stock price would equal Net Present Value (NPV) of $112 a share. Meeting with analysts on April 15, Chief Executive John Richels identified risk-adjusted resources of 46 trillion cubic feet (tcfe) and 1.9 billion barrels (bboe) in seven geologic provinces in North America. Believing that those and other resources are worth more than Devon’s stock price, Mr. Richels emphasized the company’s intention to repurchase another $1.9 billion of DVN shares in 2011.
We believe repurchase creates value per share since Devon’s McDep Ratio is the lowest among independent producer peers. On another measure of quality, debt is exceptionally low-- thereby allowing investors to own more of Devon stock without assuming great risk. Surveying the rich resources, the company’s well-established position in the Barnett Shale in Texas with 18 tcf of risked resources has been augmented with newer development in the Cana Woodford Shale of Oklahoma, now up to 11 tcf of risked resource. Deep oil sands and heavy oil in Canada add 1.5 bboe to Texas Panhandle and Permian Basin risked resources of 0.4 bboe. Other risked resources include 10 tcfe in Canada’s Horn River and 7 tcfe in the U.S. Haynesville and Bossier Shale.
Natural gas and oil contribute a 55/45 balance to NPV. Devon’s attractive valuation stands out in our regular rankings. Finally, oil price trends up with the latest quote for the next six years at $103 a barrel compared to the 40-week average of $92.
Originally published on April 19, 2011