10-QPeriod: Q1 FY2021

DEVON ENERGY CORP/DE Quarterly Report for Q1 Ended Mar 31, 2021

Filed May 5, 2021For Securities:DVN

Summary

Devon Energy Corporation (DVN) reported a significant turnaround in its first quarter of 2021, a stark contrast to the same period in 2020. The company posted net earnings of $216 million, or $0.32 per diluted share, compared to a net loss of $1.8 billion, or $(4.82) per diluted share, in Q1 2020. This dramatic improvement is primarily attributable to the successful completion of the all-stock merger with WPX Energy on January 7, 2021, coupled with a strong recovery in commodity prices. The merger has created a leading oil producer with substantial assets in the Delaware Basin, and the company is already realizing synergies and benefits from this strategic combination. Financially, Devon ended the quarter with $1.88 billion in cash and cash equivalents and $3.0 billion in available credit under its Senior Credit Facility, with no significant debt maturities until 2023. The company's operational performance also showed improvements, with increased production volumes across key areas like the Delaware Basin. Devon is now executing on a returns-driven strategy, including a new fixed-plus-variable dividend policy, signaling a commitment to returning capital to shareholders.

Financial Highlights

45 data points
Beta

Revenue

$2.05B

Net Income

$213.00M

10.4% Net Margin

EPS (Diluted)

$0.32

Total Assets

$20.46B

Cash & Equivalents

$1.68B

Free Cash Flow

$93.00M

Financial Statements
Beta
Revenue$2.05B
Operating Income$216.00M
Interest Expense$105.00M
Net Income$213.00M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)649.00M
Shares Outstanding (Diluted)651.00M

Key Highlights

  • 1Successful completion of the merger of equals with WPX Energy on January 7, 2021, significantly expanding Devon's asset base and operational scale, particularly in the Delaware Basin.
  • 2Shift from a net loss of $1.8 billion in Q1 2020 to a net earning of $216 million in Q1 2021, showcasing a strong financial recovery driven by the merger and improved commodity prices.
  • 3Total revenues increased to $1.76 billion in Q1 2021, up from $807 million in Q1 2020, reflecting higher sales volumes and commodity prices.
  • 4Operating cash flow from continuing operations increased to $592 million in Q1 2021, up from $529 million in Q1 2020, demonstrating enhanced cash generation capabilities.
  • 5Introduction of a new fixed-plus-variable dividend strategy, with $0.30 per share paid in Q1 2021 and a higher dividend announced for Q2 2021, underscoring a commitment to shareholder returns.
  • 6Strong liquidity position with $1.88 billion in cash and cash equivalents and $3.0 billion in undrawn credit facilities as of March 31, 2021, with no debt maturities until 2023.
  • 7Restructuring and transaction costs of $189 million were recognized in Q1 2021, primarily related to merger integration, including severance and transaction fees.

Frequently Asked Questions

The merger with WPX Energy, completed on January 7, 2021, significantly impacted Devon's Q1 2021 results. It led to a substantial increase in revenues, production volumes, and asset base, particularly in the Delaware Basin. The merger is accounted for using the acquisition method, with Devon as the acquirer. While the integration resulted in $189 million in restructuring and transaction costs, it also laid the groundwork for expected synergies and a more robust financial and operational profile, contributing to the company's return to profitability.

Commodity prices saw a significant recovery and increase in Q1 2021 compared to the depressed levels in Q1 2020, which were heavily impacted by the COVID-19 pandemic. For instance, WTI crude oil prices increased by 25% year-over-year, and Henry Hub natural gas prices rose by 39%. This price recovery, alongside higher production volumes, was a primary driver for Devon's improved financial performance, turning a substantial loss in Q1 2020 into a profit in Q1 2021. The company also utilized hedging strategies, though the impact of hedge settlements on earnings was mixed compared to the prior year.

Following the merger, Devon has transitioned to a 'fixed plus variable' dividend strategy. The company paid a total dividend of $0.30 per share in Q1 2021, consisting of a fixed dividend ($0.11 per share) and a variable dividend ($0.19 per share). The variable dividend is designed to return up to 50% of excess free cash flow to shareholders. For Q2 2021, Devon announced a higher dividend of $0.34 per share, with $0.11 fixed and $0.23 variable, indicating a continued commitment to rewarding shareholders with improved cash flows.

As of March 31, 2021, Devon reported total debt of $7.27 billion, with $7.04 billion classified as long-term. The company assumed a significant portion of WPX's debt through the merger but has actively worked to manage its debt profile, including redeeming approximately $530 million in Q1 2021 and planning further redemptions. Devon maintains a strong liquidity position with $1.88 billion in cash and $3.0 billion in available credit, and notably, has no debt maturities until the latter half of 2023. The company's credit ratings from S&P, Fitch, and Moody's are BBB-, BBB, and Ba1 respectively, with stable to positive outlooks.