Devon Energy Misses Estimates But Grows Organically

By Markets Fool.com

Oklahoma-based Devon Energy Corporation missed analyst estimates posting core earnings of $0.22 per diluted share against estimates of $0.27 per share for the first quarter of 2015. Additionally, the carnage in oil prices forced the independent exploration and production company to incur a non-cash, full-cost ceiling after tax charge of $3.5 billion on its oil and gas properties.

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Oil and gas sales suffer, production grows
Total operating revenues fell 12% from last year's first quarter to $3.2 billion. But core oil and gas sales fell a substantial 48% over the same period to $1.3 billion due lower realized commodity prices. Production-wise, Devon averaged 685,000 barrels of oil equivalent, or Boe, per day compared to 691,000 Boe/d a year earlier. However, the company notes the current acreage had only yielded 563,000 Boe/d last year. That means Devon organically grew its oil and gas production by an impressive 21.6%.

Devon's strategy to gradually transition to liquids production in 2011 from predominantly being a natural gas producer is still bearing fruit as it reported record oil production of 272,000 Boe/d versus 190,000 Boe/d in the year ago quarter. This represents a significant 43% increase. Management attributed the growth primarily to the company's oil rich Eagle Ford assets in Texas and its heavy oil facilities in Canada, specifically the Jackfish 3.

Natural gas production, on the other hand, fell 25% to 1.6 billion cubic feet per day, or Bcf/d, by divesting assets that produced 585 million cubic feet per day, or MMcf/d, last year.

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Management also provided overall production guidance between 649,000 Boe/d-684,000 Boe/d for 2015 with oil production specifically growing between 25%-35% from last year's numbers.

Midstream operations look promising
The company's midstream operations -- thanks to its acquisition of Crosstex Energy and the subsequent formation of EnLink Midstream and its master limited partnership EnLink Midstream Partners -- was a major revenue driver this quarter. Midstream and marketing revenue grew 9.6% to $1.6 billion. Midstream operating profit came in at $193 million, a 6% growth from last year. The company also dropped down assets into its MLP thereby strengthening its balance sheet and unlocking value. Accretive midstream transactions totaled $870 million.

Hedging and oil and gas derivatives increased revenue by about $600 million from last year's first quarter. Management seemed well prepared to face low commodity prices.

Operating costs fell on a per barrel basis to $10.73 per barrel, a 9% decrease from last year. Management aims to save $170 million in 2015 through cost reductions. Devon's 2015 capital expenditures are expected to be between $4.5 billion-$4.9 billion.

Foolish takeaway
Low oil prices have hurt Devon Energy. But, the company seems to be keen on developing organically and reduce capital spending. Cash flows from operations remained strong at $1.6 billion which is a very positive sign for the company's business.

The article Devon Energy Misses Estimates But Grows Organically originally appeared on Fool.com.

Isac Simon has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.