Devon Energy: Resources Are 3X Reserves

Buy-recommended Devon Energy (DVN) offers unlevered appreciation potential of 16% to estimated net present value [NPV] of $139 a share.

First quarter results released on May 7 reflected rising oil and gas price beyond our projections of three months ago. Looking ahead, projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (EBITDA). Projected cash flow capitalized at unlevered multiples (PV/EBITDA) related to reserve life (Adjusted R/P) supports NPV.

While NPV is justified primarily by 2.5 billion barrels of proven reserves, the company has an additional 7.2 billion barrels of resources described in a presentation on March 28. The Barnett Shale around Fort Worth and the Gulf of Mexico Deepwater may be half of the company’s future potential. Finally, a strong uptrend in oil price increasingly makes current NPV tied to $80 a barrel look low.

Originally published on May 7, 2008.