Devon Energy: Deleveraging Is The Top Priority
Richard Zeits • 11 Comments
Richard Zeits • 11 Comments
Devon Has Come A Long Way, But Doesn't Seem Done Yet
Stephen Simpson, CFA
Stephen Simpson, CFA
Sat, Mar. 12, 8:25 AM
- Markets have been waiting for U.S. oil companies to cut production amid lower crude prices, but many of the companies have been paying their top executives to keep the oil flowing, according to a WSJ analysis.
- “You want to know why most of the industry outspent cash flow last year trying to grow production? That's the way they're paid," says EOG Resources (NYSE:EOG) CEO William Thomas.
- An example: Hess (NYSE:HES) CEO John Hess earned more than $1M in 2014 (the most recent year available for pay data), which was more than a third of his bonus, because the company beat production and reserve targets.
- Also: Anadarko Petroleum (NYSE:APC) CEO R.A. Walker earned ~$1.5M because the company’s output rose 8% and exceeded goals for finding new oil and gas deposits.
- Thomas and others at EOG derived just 8% of their bonuses from hitting production and reserve targets in 2014, and instead placed more emphasis on return on capital, relative stock price and spending, WSJ says.
- Some shareholder activists are seeking to limit bonuses tied to production and reserve growth, pitching proxy ballot measures at companies such as Chesapeake Energy (NYSE:CHK), ConocoPhillips (NYSE:COP) and Devon Energy (NYSE:DVN).
- Companies will detail how they calculated 2015 bonuses in proxy filings beginning this month.
Wed, Mar. 9, 7:20 PM
- Oil production in the Permian Basin has been much more resilient in the face of the ~65% drop in oil prices since mid-2014 than other shale regions, and in fact has been climbing steadily while the Eagle Ford and Bakken plays are showing overall declines.
- As of early February, Permian's oil production slightly exceeded 2M bbl/day - up from 1.4M bbl/day at the beginning of 2014 - even though the drilling rig count for the basin fell to 181 from about 550 a year earlier, and EIA data released Monday projects Permian’s output at 2.036M bbl/day while Eagle Ford and Bakken are expected to continue to drop.
- "If you are in an oil-producing related business, the Permian Basin is the place to be in 2016,” says energy consultant Charles Perry.
- Relevant tickers include PXD, OXY, CVX, COP, CXO, APA, DVN, APC, XOM, NBL, CPE, PE, FANG, RSPP, LPI, XEC, EQT
Tue, Mar. 1, 9:51 AM
- Marathon Oil (MRO -6.3%) opens sharply lower after upsizing its public offering to 145M common shares and pricing it at $7.65/share; MRO's original offering had totaled 135M shares.
- MRO says it intends to use the proceeds to strengthen its balance sheet and fund part of its capital program.
- While the offering represents a 20% dilution to MRO shareholders, it is a far better choice than adding to its $7.3B long-term debt load, according to TheStreet.com's Jim Collins.
- Energy companies have issued nearly $11B in equity YTD, with MRO just the latest to issue equity within the past two weeks following Devon Energy (DVN -3.6%), Enbridge (ENB -1%) and Newfield Exploration (NFX -0.9%).
Fri, Feb. 26, 1:10 PM
- Chevron's (CVX -0.1%) Aa1 credit rating is placed on review for a downgrade at Moody's, which predicts negative free cash flow this year and next, and possibly even into 2018.
- Moody’s expects CVX's negative free cash flow exceeding $15B in 2016, despite the company's planned 25% capex cut, after recording negative free cash flow of ~$16B in 2015.
- Newly downgraded at Moody's: Occidental Petroleum (OXY +1.2%) to A3, EOG Resources (EOG -2.3%) to Baa1, ConocoPhillips (COP +4.5%) to Baa2, Apache (APA +5.1%) to Baa3, Marathon Oil (MRO +5.5%) to Ba1, Devon Energy (DVN +4.6%) to Ba2 and EnLink Midstream Partners (ENLK +4.9%) to Ba2.
- Earlier: Exxon's AAA rating affirmed by Moody's but outlook turns negative (Feb. 25)
Mon, Feb. 22, 3:21 PM
- Bernstein analyst Bob Brackett tags Chesapeake Energy (CHK +17%) and Encana (ECA +5.6%) as the E&P stocks that could cause the most pain for investors going forward.
- CHK already has suffered plenty, but Brackett writes thinks it has the highest risk of bankruptcy in his coverage universe, and the current stock price "essentially shuts it out of the equity market,” while ECA is most likely to issue equity and see its credit rating cut to junk status.
- Meanwhile, Brackett thinks EOG Resources (EOG +3.8%) is the safest play due largely to a returns-oriented culture and relative conservatism in the early part of this cycle, while ConocoPhillips (COP +4.4%) and Devon Resources (DVN +9%) already have made their big moves - a big dividend cut and an equity raise, respectively - which relieves the pressure on management to take further drastic steps.
Fri, Feb. 19, 2:17 PM
- Investors buying new shares issued by beaten-down energy companies seem to be betting that oil prices are near the bottom and that the shares are coming cheap, WSJ reports.
- North American oil and gas producers have sold more than $5B of new shares so far this year, and the early returns on the deals have helped stoke investor interest, says energy analyst Bill Costello of Westwood Holdings. “Anybody who has played them has made money... it gives people encouragement.”
- This week, Devon Energy (NYSE:DVN) boosted the size of its offering by 25% to more than $1.2B to meet investor interest, and Energen (NYSE:EGN) and Raging River Exploration (OTC:RRENF) also increased the amount of stock sold from their original proposals.
- At the same point a year ago, only $2.9B had been raised through energy stock offerings but activity picked up as investors bet on rising crude prices, which of course resulting in big losses for many.
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DWTI, DBO, DTO, USL, DNO, OLO, SZO, OLEM
Thu, Feb. 18, 9:22 AM
Thu, Feb. 18, 7:47 AM
- Devon Energy (NYSE:DVN) -6.8% premarket after upsizing its public offering to 69M common shares, with an underwriters option to purchase an additional 10.35M shares, and pricing the offering at $18.75/share.
- The offering, first announced after yesterday's close, originally was sized at 55M shares.
- RBC Capital cuts its price target on DVN to $35 from $50, noting that management seemed to imply in its Q4 earnings call that an equity raise was not necessary, but the offering looks like a reaction to current market conditions and improves liquidity for an oil price recovery (Briefing.com).
Wed, Feb. 17, 4:14 PM
- Already sharply lower in regular trading, Devon Energy (NYSE:DVN) -6.5% AH after announcing a public offering of 55M common shares, with an underwriters option to purchase up to an additional 8.25M shares.
- DVN says it plans to use the proceeds for general corporate purposes, including bolstering its liquidity position, reducing indebtedness and funding its capital program.
Wed, Feb. 17, 3:57 PM
- EnLink Midstream (ENLC -19.4%) and EnLink Midstream Partners (ENLK -6.8%) are sharply lower near the close after both companies reported big Q4 losses (I, II).
- ENLC reported Q4 cash available for distribution of $47.8M, down from $66.3M in the year-ago quarter, but the coverage ratio was a still adequate 1.04x; Motley Fool's Matt DiLallo says the problem stems from ENLK's 2016 guidance assuming an average oil price of $43.75/bbl - well above current prices - which would provide just enough cash flow to maintain its current distribution rate with no margin for error.
- The results also weighed on Devon Energy (DVN -4.3%) stock, since it has a big ownership stake in the EnLink companies.
- ENLC and ENLK were downgraded to Underperform and Neutral, respectively, at BofA Merrill, which believes ENLK will come under further scrutiny by credit agencies.
Wed, Feb. 17, 2:29 PM
- Devon Energy (DVN -5.1%) slides to a 14-year low before rebounding somewhat, as its Q4 earnings beat is overwhelmed by missing revenue expectations, cutting its dividend by 75% and plans to cut ~20% of its workforce.
- In addition to trimming its quarterly dividend to $0.06/share from the previous $0.24, DVN also is cutting its 2016 capital budget by ~75% from last year to a new range of $900M-$1.1B; the company sees overall top line production in 2016 for core assets falling by 6%, driven by lower gas volumes.
- DVN's focus on cutting costs and debt and preparing to live within cash flow "should be taken positively," Nomura writes. "What the market will look to understand going forward, though, is management's ability to execute on this plan, and then the plan’s impact on out year production/ declines (post 2016). The overall message of the release was re-positioning for the current environment."
Tue, Feb. 16, 6:16 PM
- The Sierra Club is suing units of Chesapeake Energy (NYSE:CHK) and Devon Energy (NYSE:DVN), accusing the companies' fracking practices of causing tremors in Oklahoma and Kansas.
- The group blames the practice of injecting liquid oil and gas waste into deep ground-wells for helping cause a spike of more than 5,800 earthquakes in Oklahoma in 2015, up from an annual high of 167 in the years from 1977 to 2009, according to the complaint filed in federal court in Oklahoma City.
- Meanwhile, Oklahoma state regulators unveil their largest volume reduction plan yet for oil and gas disposal wells in western Oklahoma’s Arbuckle formation in response to increased numbers of earthquakes; the plan, along with an earlier reduction plan, will bring the total volume cutback for the entire area to more than 500K bbl/day, or ~40%.
Tue, Feb. 16, 5:39 PM
- Devon Energy (NYSE:DVN) -10.6% AH after reporting better than expected Q4 earnings, a 75% dividend cut, and plans for a 75% reduction in capital spending for 2016.
- DVN says it expects 2016 E&P capital investment of $900M-$1.1B, down 75% from 2015, with its investment focused entirely on its core asset portfolio; DVN says it should maintain relatively flat oil production Y/Y from the company's core assets, with top-line production from core assets declining by 6%, driven by lower gas volumes.
- DVN's Q4 oil production averaged 278K bbl/day, up 16% Y/Y, with oil production from core assets rising 26% Y/Y, driven by Delaware Basin and Rockies growth in the U.S. and the Jackfish 3 project in Canada; overall Q4 net production from core assets averaged 571K boe/day, up 7% Y/Y.
- DVN says it will lay off ~20% of its workforce, or ~1,000 employees, including 700 in Oklahoma City, by early next week, a move the company says could save up to $500M/year when combined with other cost cuts.
Tue, Feb. 16, 4:25 PM
Tue, Feb. 16, 4:17 PM
Mon, Feb. 15, 5:35 PM
Devon Energy Corp. is an independent energy company, which is engaged primarily in exploration, development and production of oil, natural gas and natural gas liquids. Its operations are concentrated in Canada and the United States. It owns natural gas pipelines, plants and treatment facilities.... More
Sector: Basic Materials
Industry: Independent Oil & Gas
Country: United States
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