Devon posts $197M loss after debt buyback

Strong wells in Oklahoma and New Mexico helped boost firstquarter oil production at Devon Energy Corp. even as accounting charges led the company to post a $197 million net loss in the first quarter.

The loss includes a $312 million charge connected to the company’s effort to buy back debt and translates to a loss of 38 cents a share, compared to a profit of $303 million, or 58 cents a share in the first quarter of 2017.

Adjusting for the debt-buyback charge and other one-time expenses, Devon recorded core earnings of $108 million, or 20 cents a share, meeting or slightly exceeding analyst expectations.

“Devon is growing as a company,” CEO Dave Hager said in an interview with The Oklahoman on Tuesday. “We expect significant expansion of our cash flow throughout the year on the order of 35 percent. That has allowed us to raise our full-year production guidance by 2 percent without adjusting our capital spending.”

In the first quarter, Devon boasted the two highest-rate wells in the history of the Delaware Basin, which stretches across southeast New Mexico and west Texas. The wells reached a combined initial production rate of about 24,000 barrels of oil equivalent per day, including 80 percent oil.

‘We’re finding tremendous efficiencies’

In Oklahoma, the company completed its STACK Showboat project 40 days early. The project generated a 30 percent improvement in drilling time and doubled the speed of hydraulic fracturing operations compared to other activity in the area, the company said.

“That means we can finish our 2018 projects earlier than planned and have a decision now if we want to move some 2019 production into 2018,” Hager said. “We can accelerate the rate of our production growth, even compared to our plan, in which we already were going to grow.”

The efficiencies led to a cost savings of $1.5 million per well at Showboat, the company said.

Showboat is Devon’s first STACK play multizone project, meaning it is drilling from one surface location into several different rock layers.

“We’re finding tremendous efficiencies when we have multiple drilling plays,” Hager said. “We knew it would be efficient and save money and time, but it’s even quicker and is saving more money than we anticipated.”

Devon’s total production averaged 544,000 barrels of oil equivalent per day in the first quarter, including 46 percent oil. That compares to 563,000 equivalent barrels per day in the year-ago period.

Production in the STACK play jumped 67 percent from the yearago

quarter, while Delaware Basin production expanded by 20 percent.

Devon in the first quarter received an average price of $61.79 per barrel of U.S. oil, $19.74 per barrel of Canadian oil and $2.58 per thousand cubic feet of natural gas. That compared to the year-ago average price of $49.65 for U.S. oil, $26.30 for Canadian oil and $2.65 for natural gas.

Revenues increased to $3.81 billion, up from $3.56 billion one year ago. Operating cash flow increased to $804 million, up from $746 million one year ago.

Cutting costs by cutting jobs

Along with increased efficiencies, the company also has cut costs through layoffs. More than 300 employees companywide and about 240 in Oklahoma City were laid off last week as the company reduced its employment by about 9 percent.

“This was a very, very difficult decision,” Hager said Tuesday. “We lost some very talented employees as part of that decision.

“The reason for the reduction is to increase our focus on the core value-creation activities of the company. We had too many long-term initiatives going on. In isolation, each of them seem like a very good thing to pursue, but when looked at in aggregate, we had so many issues going on it was diluting the focus of the overall value-creating activities that were fundamental to the company.”

The layoffs contribute to a total general and administrative and interest savings of $175 million annually, but Hager said the decision was about more than cost.

“It was about increasing the focus of the company,” he said. “It will reduce the cost, but we would have done this regardless of the price environment.”