10-QPeriod: Q3 FY2021

DEVON ENERGY CORP/DE Quarterly Report for Q3 Ended Sep 30, 2021

Filed November 3, 2021For Securities:DVN

Summary

Devon Energy Corporation's (DVN) Q3 2021 10-Q filing reveals a significant turnaround and strong performance, largely driven by the successful integration of the WPX Energy merger earlier in the year and a favorable commodity price environment. The company reported substantial net earnings, a stark contrast to the previous year's losses, and robust operating cash flow. This financial strength has enabled Devon to significantly reduce debt, return capital to shareholders through dividends, and initiate a substantial share repurchase program. Key operational highlights include strong production volumes, particularly in the Delaware Basin, and improved realized prices for oil, gas, and NGLs. The company has also made progress on achieving merger-related cost synergies. Looking ahead, Devon remains focused on disciplined capital allocation, prioritizing free cash flow generation and shareholder returns while maintaining a strong balance sheet. The company's liquidity position is robust, with ample cash and an undrawn credit facility, positioning it well to navigate future market conditions.

Financial Highlights

44 data points
Beta

Revenue

$3.47B

Net Income

$838.00M

24.2% Net Margin

EPS (Diluted)

$1.24

Total Assets

$21.06B

Cash & Equivalents

$2.14B

Free Cash Flow

$1.12B

Financial Statements
Beta
Revenue$3.47B
Operating Income$1.32B
Interest Expense$93.00M
Net Income$838.00M
EPS (Basic)$1.24
EPS (Diluted)$1.24
Shares Outstanding (Basic)671.00M
Shares Outstanding (Diluted)673.00M

Key Highlights

  • 1Significant increase in net earnings to $844 million for Q3 2021, compared to a net loss of $90 million in Q3 2020, primarily due to the WPX merger integration and higher commodity prices.
  • 2Total revenues increased significantly to $3.47 billion for Q3 2021, up from $1.07 billion in Q3 2020.
  • 3Generated strong operating cash flow of $1.60 billion in Q3 2021, a substantial increase from $427 million in Q3 2020, demonstrating improved operational and financial performance.
  • 4The company repaid $1.2 billion of debt in the first nine months of 2021 and ended Q3 with $6.5 billion in long-term debt, but with no maturities until 2023 and a healthy debt-to-capitalization ratio of 25.1%.
  • 5Returned capital to shareholders with $761 million in dividends year-to-date in 2021, including both fixed and variable components, and announced a $1.0 billion share repurchase program in November 2021.
  • 6Production volumes saw a notable increase, with total oil production at 303 MBbls/d in Q3 2021, up 4% from Q2 2021 and significantly higher than the 154 MBbls/d average for the first nine months of 2020.
  • 7Realized prices for oil, gas, and NGLs improved considerably, with combined realized prices (unhedged) increasing by 13% sequentially in Q3 2021 and 105% year-over-year for the first nine months.

Frequently Asked Questions

The primary drivers were the successful integration of the WPX Energy merger completed in January 2021, which expanded Devon's asset base and operational scale, and a significant increase in commodity prices for oil, natural gas, and NGLs. These factors led to a substantial increase in total revenues and a strong swing from a net loss to a significant net profit.

Devon Energy has actively managed its debt. In the first nine months of 2021, the company redeemed approximately $1.2 billion of senior notes. As of September 30, 2021, the company had $6.5 billion in long-term debt, but importantly, had no debt maturities until August 2023 and maintained a strong debt-to-capitalization ratio of 25.1%, indicating a healthy balance sheet.

Devon Energy has adopted a 'fixed plus variable' dividend strategy. In addition to a fixed quarterly dividend, the company may pay a variable dividend based on excess free cash flow. The company returned $761 million in dividends year-to-date in 2021 and also announced a significant $1.0 billion share repurchase program in November 2021, underscoring its commitment to shareholder returns.

Devon utilizes derivative financial instruments to hedge a portion of its production against price volatility. While hedging provides downside protection, it can also limit upside participation in rising price environments. The realized prices presented reflect the impact of these hedges, which are detailed in Note 3 of the financial statements. For Q3 2021, realized prices with hedges were lower than unhedged prices due to the favorable price environment.