Devon Energy Lower After Beating Q3 Views But Slashing Dividend
The Oklahoma-based company beat top- and bottom-line views, but investors gave a thumbs down to Devon’s plan to slash its dividend by 13%.
Earnings came in at $2. 18 per share, 102% higher than the year-ago quarter. Revenue was $5. 43 billion, a gain of 57%. These were strong results but a slowdown from previous six quarters of rapid growth. Revenue is also growing at a slower pace than in 2021 or earlier this year.
MarketBeat earnings data for Devon show the company beating bottom-line views in the past six quarters, although revenue came in lower-than-expected on some occasions. CEO Rick Muncrief emphasized operational efficiency over growth in Tuesday’s earnings release. Although efficiency and cost containment are key principles of good management and can boost earnings, they don’t encourage investors looking for strong revenue growth.
Efficiency & Consistent Execution
“Devon’s third-quarter performance demonstrated the flexibility of our cash-return business model to create value for shareholders in multiple ways,” he said in a statement. “The team’s consistent execution and monitoring of our plan was key to our success. This was once again demonstrated by strong well productivity and efficiency gains that drove volumes above the high end of guidance with a capital spend that was below forecast.”
However, during the third quarter, the company closed on acquisitions in the Williston Basin and Eagle Ford for $2.5 billion. In the earnings release, the company said, “After funding these acquisitions with cash, Devon exited September with cash balances of $1.3 billion and strong investment-grade credit ratings.”
Muncrief also addressed those acquisitions in his comments, saying, “As a result of the immediate value these acquisitions create, we are revising our financial and operational outlook higher for the fourth quarter. This updated outlook increases production targets, raises free cash flow projections and enhances our ability to deliver differentiated cash returns to shareholders.”
Devon is revising its production forecast higher in the current quarter, to a range of 640,000 to 660,000 barrels of oil equivalent, or BOE, per day.
BOE, a method used by the oil-and gas industry to measure both crude oil and natural gas quantities, is a way to measure these quantities. This forecast shows a 6% increase in production over the previous quarter. The company said it would be driven by 35,000 Boe per day of incremental production from the Eagle Ford acquisition.
Quarter-Over-Quarter Dividend Cut
As optimistic as that sounds, the dividend cut did not go over well. According to the company, its third quarter dividend would be $1. 35 per share, up from the year-ago quarter, but down sequentially. The majority of Devon’s operations is located in West Texas’ Permian Basin. The company also operates in Oklahoma’s Anadarko Basin, and Wyoming’s Powder river Basin.
With a market capitalization of $47. 43 billion, Devon is a component of the S&P 500 energy sector. Within the sub-industry of domestic explorers and producers, only EOG Resources (NYSE: EOG) and Pioneer Natural Resources (NYSE: PXD) are larger. All three are part of the S&P 500 sector, but all are dwarfed by the integrated energy giants Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX).
Among large-cap U.S.-based explorers and producers, Devon is the price-performance leader, with the following recent returns:
- 1 month: 28. 55%
- 3 months: 28. 07%
- Year-to-date: 84. 15%
- One year: 95. 19%
Smaller industry peers, including Amplify Energy (NYSE: AMPY), W&T Offshore (NYSE: WTI), Comstock Resources (NYSE: CRI), Talos Energy (NYSE: TALO), and Matador Resources (NYSE: MTDR) all have slightly better price performance. While small industry players often make the most gains, there are some trade-offs that may be required. In some cases, this could mean lower risk and less liquidity.
Heading into Wednesday’s close, Devon shares were around 7% below a cup-with-handle buy point of $75.37. The stock was finding solid support along its 50-day moving average, an indication that institutional investors may be taking partial profits, rather than selling off wholesale.
I’m a journalist who specializes in investigative reporting and writing. I have written for the New York Times and other publications.