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.
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:
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.
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
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.
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This article was written by
I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while.
I live mostly in Sweden with my loving wife.
I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years.
“Logic will get you from A to B. Imagination will take you everywhere.” Einstein.
Note: I am not a financial advisor. All articles are my honest opinion. It is your responsibility to conduct your own due diligence before investing or trading.
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.