Devon Energy Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are principally with Q1 2023. Devon is a U.S. onshore oil and gas producer operating in the Delaware Basin, Eagle Ford, Anadarko Basin, Williston Basin and Powder River Basin. Amounts are in U.S. dollars unless stated otherwise.
Key financial and operating metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $3.596 billion | $3.823 billion | Down 6% |
| Net earnings attributable to Devon | $596 million; $0.94 diluted EPS | $995 million; $1.53 diluted EPS | Down 40% |
| Core earnings attributable to Devon (non-GAAP) | $730 million; $1.16 per diluted share | $952 million; $1.46 per diluted share | Down 23% |
| Operating cash flow | $1.738 billion | $1.677 billion | Up 4% |
| Capital expenditures | $894 million | $1.012 billion | Down 12% |
| Production | 664 thousand Boe per day | 641 thousand Boe per day | Up 4% |
| Field-level cash margin (non-GAAP) | $1.878 billion; $31.09 per Boe | $1.986 billion; $34.42 per Boe | Down 5% in total |
Oil production was 319 thousand barrels per day, 4% above plan. Oil, gas and NGL sales were $2.629 billion, while marketing and midstream revenue was $1.112 billion. Reported commodity derivatives were a $145 million loss, compared with a $64 million gain in Q1 2023. Total expenses increased to $2.828 billion from $2.599 billion, including higher production costs and depreciation, depletion and amortization (DD&A). The effective tax rate was 21%, versus 18%.
Financial position and capital returns
- Cash, cash equivalents and restricted cash were $1.149 billion at March 31, 2024, versus $875 million at year-end 2023. Total current assets were $3.398 billion and current liabilities were $3.266 billion.
- Total debt was $6.147 billion, including $479 million classified as short-term; $472 million of notes mature in September 2024. Debt carried fixed rates averaging 5.7%. The $3.0 billion revolving credit facility had no borrowings and approximately $3.0 billion available; Devon reported $4.1 billion of total liquidity.
- Operating cash flow funded capital expenditures. The company spent $299 million on common dividends and repurchased $193 million of shares under its repurchase program during the quarter. The program was approximately 83% completed at March 31, with about $508 million remaining then.
- The fixed quarterly dividend rose 10% to $0.22 per share. Q1 dividends totaled $0.44 per share, including the variable dividend. In May, Devon declared a $0.35-per-share Q2 dividend, estimated at $221 million.
Material changes versus Q1 2023
- Revenue fell 6% and Devon-attributable net earnings fell 40%, despite 4% higher total production. Lower natural gas and NGL realized prices were key pressures; combined realized price after hedges declined 6% to $43.91 per Boe.
- Higher production volumes added an estimated $67 million to earnings, but lower realized prices reduced earnings by an estimated $117 million. Production expenses rose 8%, including higher lease operating and gathering, processing and transportation costs.
- DD&A increased 17% to $722 million, mainly because the oil and gas DD&A rate rose 13%, reflecting prior drilling and development activity.
- Operating cash flow increased modestly while capital expenditures declined. Share repurchases and dividends were also lower than in Q1 2023.
Outlook, risks and contingencies
- Devon expects remaining-2024 capital expenditures of approximately $2.4 billion to $2.7 billion. Management emphasized moderated production growth, capital discipline and spending within cash flow; it expects material free cash flow at current commodity prices. The filing text does not provide a clear numerical production or commodity-price forecast.
- Management cited cost inflation as a risk to efficiencies and margins. Other stated risks include commodity-price volatility, midstream capacity constraints, regulatory and environmental requirements, counterparty credit, hedging exposure and access to capital. About 30% of anticipated remaining-2024 oil production and 25% of gas production was hedged at quarter-end.
- A 10% move in relevant forward price curves would have changed the net value of commodity derivatives by approximately $200 million. Derivative fair-value changes are volatile and affected reported results; Devon’s non-GAAP core earnings exclude certain such changes.
- Royalty litigation and audits are ongoing; Devon accrued approximately $50 million for royalty matters. The company also disclosed Louisiana coastal environmental litigation and climate-related proceedings, which it intends to defend. Potential East Bay Field decommissioning obligations could not be estimated because of bankruptcy and other uncertainties.
- Asset retirement obligations were $709 million, including $683 million long-term; the quarter included a $35 million upward revision, primarily reflecting updated cost estimates and retirement dates. Management stated that legal matters are not expected to be material after recorded accruals, while noting actual outcomes may differ.
- The revolving-credit covenant limit is a 65% debt-to-capitalization ratio; Devon reported 21.5% and compliance at quarter-end. Credit ratings were BBB (S&P), BBB+ (Fitch) and Baa2 (Moody’s), each with a stable outlook.
Important facts for investors to verify
- Whether realized oil, gas and NGL prices, production costs and derivative fair-value changes evolve consistently with management’s cash-flow expectations.
- Execution of the remaining 2024 capital budget and the impact of inflation or midstream constraints on production and margins.
- The September 2024 note maturity and continued liquidity, covenant compliance and debt-rating stability.
- Progress on share repurchases and the sustainability of fixed and variable dividends, which depend on Board discretion and financial results.
- Developments in royalty claims, climate and environmental litigation, and potential East Bay decommissioning exposure.
- Differences between GAAP earnings and non-GAAP core earnings, including the treatment of derivative valuation changes.