10-QPeriod: Q1 FY2018

DEVON ENERGY CORP/DE Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 2, 2018For Securities:DVN

Summary

Devon Energy Corporation (DVN) reported a net loss of $197 million for the first quarter of 2018, a significant shift from the $303 million net profit in the same period of 2017. This loss was largely driven by a substantial increase in financing costs, specifically related to the early retirement of debt, which added $312 million to expenses. Revenue also saw a slight decrease to $3.81 billion from $3.55 billion year-over-year, impacted by changes in revenue recognition accounting standards for marketing and midstream operations. Despite the net loss, the company's operational performance showed resilience. Upstream revenues were impacted by production declines, particularly in the Eagle Ford shale, and by challenging Canadian market conditions. However, strong performance in the STACK and Delaware Basin, coupled with higher realized prices for oil and NGLs, provided some offset. The company also continued its strategic focus on portfolio simplification, debt reduction, and returning cash to shareholders, evidenced by progress in asset divestitures and the authorization of a significant share repurchase program.

Financial Highlights

47 data points
Beta

Revenue

$1.67B

47.6% Gross Margin

Net Income

-$197.00M

-11.8% Net Margin

EPS (Diluted)

$-0.38

Total Assets

$29.32B

Cash & Equivalents

$1.47B

Free Cash Flow

$798.00M

Financial Statements
Beta
Revenue$1.67B
Cost of Revenue$873.00M
Gross Profit$792.00M
Operating Income-$261.00M
Interest Expense$96.00M
Net Income-$197.00M
EPS (Basic)$-0.38
EPS (Diluted)$-0.38
Shares Outstanding (Basic)520.00M
Shares Outstanding (Diluted)520.00M

Key Highlights

  • 1Net loss of $197 million in Q1 2018, compared to a net profit of $303 million in Q1 2017.
  • 2Total revenues were $3.81 billion in Q1 2018, a slight decrease from $3.55 billion in Q1 2017, influenced by new revenue recognition standards.
  • 3Financing costs increased significantly to $431 million from $128 million, primarily due to a $312 million loss on early debt retirement.
  • 4Capital expenditures increased to $832 million in Q1 2018 from $653 million in Q1 2017, driven by development in STACK and Delaware Basin.
  • 5The company announced a $1.0 billion share repurchase program and repurchased $83 million in Q1 2018.
  • 6Devon announced a 33% increase in its quarterly dividend, effective Q2 2018.
  • 7The company is progressing with its '2020 Vision' to maximize cash flow, improve capital efficiency, simplify the portfolio, reduce debt, and return cash to shareholders.

Frequently Asked Questions

The primary driver for the net loss of $197 million in Q1 2018, compared to a net profit of $303 million in Q1 2017, was a substantial increase in financing costs. This was largely due to a $312 million loss recognized from the early retirement of debt. Additionally, changes in revenue recognition accounting standards affected reported revenues and expenses.

Devon is actively managing its debt. In Q1 2018, the company reduced its long-term debt by approximately $800 million through tender offers for debt securities. The company's debt-to-capitalization ratio was 26.2% as of March 31, 2018, well within its credit facility covenant of 65%. They also have no significant debt maturities until 2021.

While overall production slightly declined by 1% sequentially and 4% year-over-year, the company saw growth in key areas like the STACK and Delaware Basin. Oil and NGL prices improved year-over-year, driven by higher WTI index prices and Mont Belvieu blended NGL prices. However, Canadian operations faced challenges with widening differentials due to export and pipeline constraints. The company has hedged a significant portion of its expected oil and gas production for the remainder of 2018.

Devon is executing on its '2020 Vision,' which includes maximizing cash flow, improving capital efficiency by focusing on high-return projects in the Delaware Basin and STACK, simplifying its portfolio through asset divestitures (targeting over $5 billion in proceeds), strengthening its financial position by reducing debt, and returning cash to shareholders. Recent actions include announcing the sale of Barnett Shale assets, authorizing a $1.0 billion share repurchase program, and increasing its quarterly dividend.