10-QPeriod: Q3 FY2018

DEVON ENERGY CORP/DE Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 7, 2018For Securities:DVN

Summary

Devon Energy Corporation's (DVN) Q3 2018 10-Q filing reveals a significant turnaround, largely driven by the substantial gain from the divestiture of its EnLink and General Partner interests, contributing $2.6 billion pre-tax. This strategic move fundamentally altered the company's financial profile, substantially boosting net earnings and cash reserves. While continuing operations showed a net loss for the nine-month period, the divestiture effectively masked this and provided ample liquidity. The company demonstrated a strong focus on returning capital to shareholders, increasing its share repurchase program to $4.0 billion and repurchasing $2.2 billion of stock year-to-date, alongside a 33% increase in its quarterly dividend. Operational improvements in key areas like the STACK and Delaware Basin contributed to production growth, partially offset by lower volumes in divested U.S. assets and maintenance activities. Despite these operational nuances, the financial health appears robust due to the strategic asset sale.

Financial Highlights

45 data points
Beta

Revenue

$1.97B

39.2% Gross Margin

Net Income

$2.54B

128.5% Net Margin

EPS (Diluted)

$5.14

Total Assets

$20.17B

Cash & Equivalents

$3.12B

Free Cash Flow

$541.00M

Financial Statements
Beta
Revenue$1.97B
Cost of Revenue$1.20B
Gross Profit$773.00M
Operating Income$96.00M
Interest Expense$68.00M
Net Income$2.54B
EPS (Basic)$5.17
EPS (Diluted)$5.14
Shares Outstanding (Basic)486.00M
Shares Outstanding (Diluted)489.00M

Key Highlights

  • 1Significant net earnings of $2.54 billion for Q3 2018, primarily driven by a $2.6 billion pre-tax gain from the sale of EnLink and General Partner interests.
  • 2Total revenues increased to $2.58 billion in Q3 2018 from $1.93 billion in Q3 2017, reflecting improved commodity prices and the revenue recognition standard adoption.
  • 3Strong operational performance in STACK and Delaware Basin areas led to a 28% increase in production for these segments year-over-year.
  • 4Increased capital return to shareholders with a $4.0 billion share repurchase program and $2.2 billion repurchased year-to-date, along with a 33% increase in the quarterly dividend.
  • 5Reduction in long-term debt by approximately $830 million, leading to an estimated annualized borrowing cost reduction of $66 million.
  • 6Enhanced liquidity with $3.1 billion in cash and cash equivalents at the end of Q3 2018.
  • 7Adoption of ASC 606 (Revenue from Contracts with Customers) resulted in a gross presentation for certain revenues and expenses, increasing reported revenues and production expenses without impacting earnings.

Frequently Asked Questions

The primary driver of Devon Energy's substantial net earnings in the third quarter of 2018 was the pre-tax gain of approximately $2.6 billion ($2.2 billion after-tax) realized from the divestiture of its aggregate ownership interests in EnLink and the General Partner.

Devon Energy significantly reduced its long-term debt by approximately $830 million during the first nine months of 2018 through tender offers and maturities, leading to an estimated annualized reduction in borrowing costs of $66 million. The company also entered into a new $3.0 billion revolving credit facility in October 2018.

The adoption of ASC 606, effective January 1, 2018, led to a change in the presentation of certain upstream revenues and production expenses from a net to a gross basis. This resulted in an increase in reported revenues and production expenses but had no impact on net earnings. This change reflects Devon's conclusion that it is the principal in these transactions.

Devon Energy is actively returning capital to shareholders through a significant share repurchase program, which was increased to $4.0 billion, with $2.2 billion repurchased year-to-date. Additionally, the company increased its quarterly common stock dividend by 33% to $0.08 per share starting in the second quarter of 2018.