- The company announced better-than-expected adjusted earnings of $1.08 compared to a loss of $0.04 per share in the year-ago quarter.
- Devon Energy produced a record of 608K Boep/d in the third quarter, or 7.2% higher than the 2Q21.
- For the third quarter of 2021, the total dividend payment is $0.84 per share.
- I recommend buying DVN below $41.
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The Oklahoma City-based Devon Energy Corp. (NYSE: NYSE:DVN) reported third quarter 2021 earnings on November 2, 2021.
1 - Q3 Snapshot
The company announced better-than-expected adjusted earnings of $1.08 compared to a loss of $0.04 per share in the year-ago quarter. The total revenues were $3,466 million, significantly higher than the same quarter a year ago. The recent merger boosted results significantly.
The third quarter production of 608K Boep/d is up 86.5% compared to 3Q20. Oil production averaged 326K Boep/d. The increase was due to solid contributions from Delaware and Williston Basin assets.
Source: Company Presentation
2 - Revenues
Total revenues of $3,466 million beat analysts' expectations and were much higher year-over-year. Revenues in 3Q20 were $1,067 million.
However, CEO Richard Muncrief said in the conference call:
Devon's third quarter results were outstanding. Once again, showcasing the power of our Delaware focused asset portfolio and the benefits of a financially driven business model. Our team's unwavering focus on operations excellence has established impressive momentum that has allowed us to capture efficiencies, accelerate free cash flow, reduce leverage, and return a market-leading amount of cash to shareholders.
3 - Investment Thesis
The investment thesis is now manifest, and I recommend DVN as a long-term opportunity that should be accumulated on weakness. On a side note, the dividend policy is positive for long-term investors.
As you can witness those recent days again, oil prices are subject to wild swings due to a threatening coronavirus that seems to mutate daily. Hence, I recommend allocating 30% to 40% of your position to short-term trading LIFO using technical analysis. It is the perfect strategy that protects you against the sudden change in the oil sector and lets you keep a core long-term position for much higher prices.
4 - Stock Performance
DVN outperformed its peers and is up 198% on a one-year basis.
Note: The company is now paying an excellent dividend yield of 8+% (including the extra dividend).
5 - Devon Energy Balance Sheet 3Q21: The Raw Numbers
Note: Total revenues include oil/gas and NGL sales, oil/gas and NGL derivatives, and marketing and midstream revenues.
|DVN (including WPX Energy)||3Q20||4Q20||1Q21||2Q21||3Q21|
|Oil and Gas Revenue in $ Million||678||786||1,757||2,154||2,635|
|Total Revenues incl. derivatives, midstream + others in $ Million||1,067||1,280||2,050||2,417||3,466|
|Net Income in $ Million||-92||-102||213||256||838|
|EBITDA in $ Million||172||250||540||938||1,635|
|EPS diluted in $/share||-0.25||-0.27||0.32||0.38||1.24|
|Cash from operations in $ Million||472||377||592||1,093||1,598|
|Capital Expenditure in $ Million||204||220||499||509||484|
|Free Cash Flow in $ Million||268||157||93||584||1,114|
|Cash and cash equivalent $ Million||1,707||2,237||1,878||1,539||2,321|
|Total Debt in $ Million||4,297||4,298||7,268||6,502||6,492|
|Dividend per share in $||0.11||0.30||0.34||0.49||0.84|
|Share outstanding in million||383||383||656||679||673|
|Liquids and NG Production||3Q20||4Q20||1Q21||2Q21||3Q21|
|Oil Equivalent Production in KBoep/d||326||333||499||567||608|
|Price per Boe (composite) incl. cash settlement||22.93||24.77||33.97||34.64||40.48|
|Price per Mcf||1.54||1.96||2.69||2.20||2.77|
Source: Devon Energy filing and Fun Trading Analysis.
Trends, Charts, and Commentary: Revenues, Free Cash Flow and Upstream Production
1 - Quarterly revenues: Revenues of $3,466 million in 3Q21
Devon Energy posted total revenue of $3,466 million in the third quarter of 2021, higher significantly from $1,067 million posted in 3Q20. For more data, please look at the table above.
The total production expenses for the third quarter were $555 million, from $271 million in 3Q20.
2 - Free cash flow was a record $1,114 million in 3Q21
Note: The generic free cash flow is the cash from operations minus CapEx.
Trailing twelve-month free cash flow was $1,948 million and a record of $1,118 million for 3Q21.
The Board of Directors authorized a $1 billion share buyback, representing 4% of Devon’s market capitalization.
The company is paying a variable dividend now based on free cash flow. The dividend consists of two parts:
- A fixed quarterly dividend of $0.11 per share.
- A variable payment ($0.73) based on a % excess free cash flow multiplied by a payout ratio determined by the board as high as 50%.
For the third quarter of 2021, the total dividend payment is $0.84 per share.
Source: Company Presentation
3 - Quarterly Production: Production was 608K Boep/d in 3Q21.
Devon Energy produced a record of 608K Boep/d in the third quarter, or 7.2% higher than the 2Q21.
Production repartition for the five prominent locations are as follows:
The Delaware Basin is the number one producing asset for Devon Energy, representing 58.9% of the total production. Liquids represent 74.2% of the total output.
Total oil equivalent realized prices, including cash settlements, were $40.48 per Boe, up 76.5% year-over-year. Below are the historical prices realized for Boe and NG.
- Realized oil prices for the third quarter were $57.59 per barrel, up 50.7% from $38.21 in the year-ago period.
- Realized prices for natural gas liquids were up 155.4% to $30.80 per barrel from $12.06 in the prior-year quarter.
- Realized gas prices were up 79.9% to $2.77 per thousand cubic feet from $1.54 in the prior-year quarter.
4 - 4Q21 and 2022 Guidance
Devon Energy expects total production for 4Q21 in the range of 583,000-601,000 Boep/d. Fourth quarter expenditure is projected in the range of $465-$535 million. The company’s 2022 total production is expected in the range of 570,000-600,000 Boe/d and upstream capital investment within $1.9-$2.2 billion.
Source: Company Presentation
5 - Debt situation, liquidity: No worry on this side.
As of September 30, 2021, the company had cash and cash equivalents, including restricted cash of $2,321 million, up from $2,237 million on December 31, 2020.
Devon Energy exited the third quarter with $2.3 billion of liquidity and no debt maturities till 2023. Long-term debt amounted to $6,492 million, up from $4,298 million on December 31, 2020. Devon Energy’s net cash from operating activities for third quarter 2021 was $1,598 million compared with $472 million in the year-ago period.
The net debt is now $4.171 billion with a net debt-to-EBITDA of 1.24x.
Source: Company Presentation
Technical Analysis and Commentary
Note: The chart is adjusted from the dividend.
DVN forms an ascending channel pattern with resistance at $45.2 and support at $41. We could also see a bullish pennant formation using a longer time frame. However, using a longer-term TA chart is uncertain due to the high volatility that we are experiencing now.
The short-term trading strategy is to trade LIFO about 30%-40% of your position and keep a core long-term position for a much higher payday. I suggest selling between $45 and $46 and waiting for a retracement between $41.25 to $40.65.
DVN could experience a breakdown caused by the new omicron variant and retests the lower support at $37.35.
Conversely, if the recent panic triggered by this new mutation evaporates quickly, then DVN could break out and reach $47-$48.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool-only to help you adopt the right strategy. It is not a way to "know" the future. No one and nothing can.
Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support. Thanks.
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This article was written by
Fun Trading is an independent investor and retired engineer. He manages his own portfolio and writes about investing in all facets of gold and oil & gas.He runs the investing group The Gold And Oil Corner where he shares a stock tracker with over 50 companies covered, in-depth technical analysis for both short and long term holdings, and a live portfolio with a range of metrics. Learn more.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in DVN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.