We updated our research report on Devon Energy Corporation DVN on Aug 18. This oil and natural gas exploration & production company’s second-quarter earnings surpassed the Zacks Consensus Estimate on the back of improving cost structure and commodity prices.

Devon has been able to generate positive results through cost-cutting initiatives. The steps resulted in savings of more than $1.4 billion in annualized Operating and General and Administrative expenses. The company expects these savings to be sustainable in 2017 owing to higher production rates from the company’s U.S. resource plays and relatively flat Lease Operating Expenses.

Devon continues to monetize its non-core assets and use the proceeds to lower its debt levels. Debt reduction in 2016 had lowered its annual forward financing costs by $120 million. The company aims to monetize assets worth $1 billion over the next 12-18 months. Devon has already sold $340 million of assets and achieved one-third of its divestiture target.

During 2017, the company plans to invest $1.9-$2.2 billion in Exploration & Production activities. Consistent investments in resource-rich assets are helping it boost total production. Devon now expects 2017 total U.S. daily oil production to improve in the range of 18-23% from the 2016 level. Rapidly expanding higher margin production is expected to drive production level higher in 2018.

However, Devon operates in a highly competitive oil and gas industry. Some of the competitors in this industry are financially stronger than it with more resources at their disposal. This might limit Devon’s capacity to apply for new drilling rights or acquire properties.

In addition, certain properties in which Devon has a stake are being operated by third parties. As a result, the company has limited control over these operations or the fate of their future development. These limitations as well as Devon’s dependence on the operator and other working interest owners over these properties could result in unexpected future costs and adversely affect its financials

Devon currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Performance of the Peers

Among the other companies in the same industry, Noble Energy Inc. NBL and WPX Energy Inc. WPX second-quarter earnings surpassed the Zacks Consensus Estimate while Anadarko Petroleum Corporation APC missed the same.

Price Movement
 
Devon Energy has lost 7.1% compared with industry’s decline of 11.9% in the last month.

The industry Devon belongs to was adversely impacted by substantial drop in the commodity prices. Its focus on higher oil production, cost savings, divestment of non-core assets and systematic investment are likely to drive its operations.

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Devon Energy Corporation (DVN) : Free Stock Analysis Report
 
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