5 Key Takeaways Devon Energy Corps New CEO Wants You to Know
Devon Energy Corp continues to defy the oil market downturn as itssecond-quarter reportabsolutely crushed analysts' expectations. The company is now under new leadership: Dave Hager took over as CEO at the beginning of August. Because change can be unnerving, he took time on the company's second-quarter conference call to update the investment community on what to expect going forward under his leadership, leaving the following five key takeaways.
1. Our strategy is unchangedHager led off his commentary saying that:
Hager wanted to make sure investors know that he plans to continue moving forward with the same strategy that has worked for Devon Energy during the past few years. The company will continue to be a North American-focused company that delivers top-tier operational performance without sacrificing its financial strength. In other words, nothing's broke, so he's not going to mess with what's been working.
2. Our operations were really strongHe then broke apart the three components of Devon's winning strategy, first focusing on its North American operations. He said that the company will:
More specifically, for the fourth-consecutive quarter, Devon Energy was able to grow its oil production above its own guidance, delivering 32% year-over-year growth, while its operating costs fell 8%. This combination of stronger-than-expected production and lower costs are really what fueled the company's better-than-expected profitability and cash flow during the second quarter.
3. We expect these strong results to continueHager continued by saying that:
Devon Energy isn't planning on slowing down its efforts to get better. The company continues to push forward on new completion designs that are driving increased production and higher returns out of each well. This is allowing the company to get more production for fewer capital dollars, which is a key to generating solid returns in a low-oil-price environment.
4. We have one of the strongest balance sheets in the industryOne of the differentiating factors between Devon Energy and other North American energy companies, particularly those focused on shale development, is its strong balance sheet. Hager discussed the company's balance sheet by walking investors through the following slide:
Source: Devon Energy Corp Investor Presentation.
He said that:
While many of Devon's peers are focused on improving their balance sheets during the downturn, that's not an issue for Devon. Instead, the company can use that advantage to focus on improving its returns as it can continue to invest in better wells. Further, the company has a lot of optionality if it needs more capital, as it can continue to drop down assets to EnLink Midstream, or even monetize its $5 billion equity position. That's a capital source that few of its peers can match.
5. We don't yet have guidance for 2016The last thing Hager wanted its investors to know was the company's initial thoughts on what 2016 will bring. He said that:
In other words, the company's crystal ball is pretty clouded at the moment. Because of this, the company's current thinking is that it will continue to roughly match capex with cash flow until there's more clarity on an improvement in the oil price. Once prices show signs of improvement, Devon Energy stands ready to accelerate growth.
Investor takeawayThe underlying core message of Hager's comments is that Devon Energy plans to continue to focus on drilling the best wells it can while maintaining is strong balance sheet. Once prices improve, the company has the balance sheet to really accelerate growth as it could, for example, monetize its EnLink Midstream position to drill more wells.
Devon remains among the best-positioned companies to capture the upside to higher oil prices whenever that day comes.
The article 5 Key Takeaways Devon Energy Corps New CEO Wants You to Know originally appeared on Fool.com.
Matt DiLallo 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.
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