01—Abstract
Summary
Summary of the 10-K filed February 20, 2019. Cited figures are marked; the original filing is the authoritative source.
Devon Energy Corporation's (DVN) 2018 10-K filing highlights a pivotal year focused on strategic transformation and portfolio high-grading.
The company successfully exited its midstream business by divesting its interests in EnLink and the General Partner for nearly $5 billiona, significantly reducing debt by 40% and strengthening its balance sheet. Operationally, Devon continued to see growth in its core U.S. oil plays, particularly the Delaware Basin and STACK, with production increasing by 27% in these key areas. The company is actively positioning itself to become a more focused U.S. oil producer by planning to separate its Canadian and Barnett Shale assets.
This strategic shift aims to improve production growth, price realizations, and field-level margins, supported by aggressive cost reduction initiatives targeting $780 millionb in annual savings by 2021. Financially, Devon returned significant capital to shareholders through a $3 billion share repurchase program in 2018 and increased its quarterly dividend by 33%.
Looking ahead, the company plans to further reduce debt and repurchase shares with proceeds from anticipated asset separations. Despite the inherent volatility in commodity prices, particularly the challenges faced by Canadian heavy oil differentials in late 2018, Devon's hedging program and focus on premium U.S. oil assets provide a framework for generating sustainable free cash flow and delivering competitive shareholder returns.
02—Key points
Key Highlights
- Divested midstream assets (EnLink and General Partner) for nearly $5 billion, significantly reducing debt by 40%.
- Increased core U.S. oil production (Delaware Basin and STACK) by 27% in 2018.
- Announced plans to separate Canadian and Barnett Shale assets to focus on four core U.S. oil plays.
- Initiated aggressive cost reduction program targeting $780 million in annual savings by 2021.
- Returned $3 billion to shareholders through share repurchases and increased the quarterly dividend by 33% in 2018.
- Ended 2018 with $2.4 billion in cash and significant available credit, with no major debt maturities until 2021.
- Experienced negative impacts from widened Canadian heavy oil differentials in Q4 2018, though these improved in early 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Devon Energy Corp kept $0.34.
- Revenue$8.90B100.0%
- Cost of revenue−$4.32B48.6%
- Gross profit$4.58B51.4%
- Operating costs−$3.86B43.4%
- Operating income$714.0M8.0%
- Interest, other & tax$2.35B26.4%
- Net income$3.06B34.4%
Where FY2018 revenue went
$8.90B- Cost of revenue: $4.32B, 49% of revenue
- Operating costs: $3.86B, 43% of revenue
- Operating income: $714.0M, 8.0% of revenue
Kept 8.0% as operating incomeOperating income $714.0M · 8.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 20, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $8.90B$6.50B | +36.8% |
| Cost of Revenue | $4.32B$3.56B | +21.4% |
| Gross Profit | $4.58B$2.94B | +55.5% |
| Operating Income | $714.00M$33.00M | +2063.6% |
| Interest Expense | $287.00M$337.00M | −14.8% |
| Net Income | $3.06B$898.00M | +241.2% |
| EPS (Basic) | $6.14$1.71 | +259.1% |
| EPS (Diluted) | $6.10$1.70 | +258.8% |
| Shares Outstanding (Basic) | 494.00M520.00M | −5.0% |
| Shares Outstanding (Diluted) | 497.00M520.00M | −4.4% |
05—Questions
Frequently Asked Questions
What are Devon's key strategic priorities moving forward?
Devon Energy's strategic priorities are centered around maintaining a premier, sustainable portfolio of assets, achieving superior execution in its operations, and preserving financial strength and flexibility. The company is actively transitioning to a more focused U.S. oil producer by planning to separate its Canadian and Barnett Shale assets, allowing it to concentrate on high-growth U.S. oil plays like the Delaware Basin, STACK, Eagle Ford, and Rockies. This focus is complemented by aggressive cost reduction initiatives aimed at improving margins and shareholder returns.
How is Devon managing its financial position and returning capital to shareholders?
In 2018, Devon made substantial progress in strengthening its financial position by divesting non-core assets, including its midstream business, which generated significant proceeds used to reduce debt by 40%. The company also actively returned capital to shareholders through a $3 billion share repurchase program and a 33% increase in its quarterly dividend. Looking ahead, Devon plans to continue debt reduction and share repurchases using proceeds from upcoming asset separations. The company aims to maintain investment-grade credit ratings while funding its operations and returning value to its investors.
What were the main operational achievements and challenges in 2018?
Operationally, Devon achieved significant production growth in its core U.S. oil assets, with the Delaware Basin and STACK showing a 27% increase in production. The company also improved operational efficiency, leading to lower breakeven costs. However, the company faced challenges, particularly in the fourth quarter of 2018, due to widened differentials for Canadian heavy oil (Western Canadian Select), which negatively impacted realized prices for its bitumen production, leading to near-zero unhedged realized prices for a period. These differentials showed improvement in early 2019.
06—Continue