Current shareholders should hold Devon Energy (DVN) long-term, interested investors may consider 2012 as an opportune entry point to initiate a position on this stock. Devon Energy has comparable metrics to its peers, its dividend is adequate, it's effectively increasing its liquid production, it has a robust portfolio of assets in North America and Devon is in the midst of a transition to increase operational efficiencies and reduce costs. Like most E&Ps, Devon's stock, revenues and earnings are highly susceptible to fluctuations in the commodity markets. Devon is especially constrained and capable of an uptick because its assets are in North America and haven't benefited from increasing prices abroad.
Based on their portfolios of assets, market cap and price per share, EOG Resources (EOG), Apache (APA), Anadarko Petroleum (APC) and Noble Energy (NBL) are the independent E&Ps most comparable to Devon Energy. Devon and Apache's price are both around 10.4 times earnings; Nobel Energy and EOG Resources are around 22 and 26 times earnings, respectively. Devon's price is around 2.2 times sales and 1.1 times its book value; only Apache has lower price ratios. Devon's current ratio is around 1.8 and its debt-to-equity ratio is around 0.48. Devon Energy's annualized dividend is around $0.80 per share.
Devon's $5.96 EPS has declined 3.6% in 2012 and is projected to increase 49% in 2013 - this is the highest projection of EPS growth among these E&Ps. Apache's $8.35 EPS is the highest among the E&Ps while EOG's 549% EPS growth in 2012, is the highest among the aforementioned. Devon's sales have increased 3.2% in the past 5 years - this is the lowest sales growth among these E&Ps. Devon's ROE is around 11.1%, its operating margin is around 33%, and its profit margin is around 22%. Devon has the highest profit margin among these E&Ps. Apache's 11.9% ROE and 37.3% operating margin are the highest among these E&Ps.
Devon's 1.96% float short and 2.49 short ratio are the highest among these E&Ps. Its beta score is above one, usually higher than Noble Energy and EOG Resources. Devon's average trading volume is around 2.9 million. Only Anadarko's 3.7 million average trade volume is higher. Devon's relative volume is currently around 0.8. Devon stock has is up 0.9% YTD, it increased 6.2% since its last earnings release and up 1.7% over the past month. Devon stock has the highest growth in the past month while EOG Resources' 15.5% stock increase is the highest YTD.
On Devon's recent earnings release, revenues totaled $2.55 billion, decreasing from $3.22 billion, YOY. Devon's expenses totaled $1.82 billion, remaining relatively flat, YOY. Devon's per unit operating costs totaled $8.30 per boe, increasing 10%, YOY. The combined average realized price for boe in the second quarter was $26.18, decreasing 29%, YOY. Operating cash flow from continuing operations totaled $2.4 billion, increasing 14%, YOY. Devon's second quarter net earnings totaled $477 million, decreasing from $2.74 billion, YOY. Devon's gain from derivatives for oil, gas, and NGL totaled $665 million, increasing from $416 million, YOY. Cash and cash equivalents at the end of the period totaled $6.1 billion, up from $3.35 billion, YOY. Devon's long-term debt at the end of the first half totaled $8.45 billion, up from $5.96 billion at the end of 2011.
Devon's second quarter total production increased 3%, YOY - this was primarily due to the 26% YOY increase in oil production to 149 mbbls per day. Oil production at the Permian Basin increased 24%, YOY. Oil accounted for 60% of the 59 mboe per day during the second quarter. Devon's Jackfish oil sands second quarter production totaled 51 mboe per day, increasing 63%, YOY. Devon's third Jackfish oil sands project was 40% complete at the end of the second quarter and is expected to be completed by the second half of 2014. Devon's second quarter net production at its Cana-Woodford Shale asset totaled 280 mmcf of natural gas equivalent per day. Liquids accounted for 30% of the total production, increasing 59%, YOY.
Devon is currently restructuring and consolidating operations in order to improve its earnings. The independent E&P recently announced it is closing the Houston office and will consolidate its operations to Oklahoma City by early 2013. Devon will retain and relocate technical positions like engineers and geoscientists; it will offer severance packages to redundant administrative and service positions to save on costs. The move will cost $100 million in the fourth quarter 2012, and $25 million before mid-2013. The consolidation in expected to save Devon $80 million on an annual basis. Devon will manage all of its assets from the Oklahoma City location once the move is complete.
In exchange for 30% of Devon's stake in 650,000 acres on the Clint and Midland Wolfcamp shales, Sumitomo will provide $410 million at the closing of the agreement and an additional $980 million for still carry. Ultimately, Sumitomo will be covering 79% of Devon's total drill and completion costs in the carry period. Devon will drill 40 wells in the region in 2012, and expects the $980 million by 2014. Devon also closed a $2.5 billion contract with China's Sinopec International Petroleum Exploration & Production Corporation earlier this year. SPIC will get a 33% stake in Devon's 1.2 million acres on the Ohio Utica Shale, the Tuscaloosa Marine Shale, Mississippian, Niobrara, and the Michigan Basin in exchange for $900 million upfront and $1.6 billion that will cover around 80% of the Devon's capital expenditure.
As crude oil prices continue to increase and stabilize, Devon's improving revenues and earnings should coincide with its production growth. The recovery of average realized prices for North American natural gas prices will also have a profound impact on Devon's earnings looking forward through 2013. Devon's continuous effort to explore and develop more assets while mitigating costs through working partnerships and organic consolidation gives the independent E&P a long-term bullish outlook.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.