Devon Energy, the US’ biggest independent oil and gas company, reported today a net loss of $4bn for the first quarter, or $8.92 per share. That poor result stemmed from a $4.2bn non-cash, after-tax reduction in the carrying value of oil and gas properties, which have fallen with the plunge in commodity prices. Without that charge, Devon earned $216m, or 48 cents per share, in the first quarter of 2009.
Nonetheless, the net results looked particularly grim when compared with net earnings of $749m, or $1.68 per share in the first quarter of 2008. Those results came when oil and natural gas prices were on the rise, before the economic downturn hit.
Yet, despite the downturn, Devon has forged ahead with production, with combined oil, gas and natural gas liquids production averaging 685,000 oil-equivalent barrels per day in the first quarter. That was a seven per cent increase in production, compared with the year-earlier quarter, at a time when many others in the industry are scaling back given the sharp dropoff in demand.
Indeed, sales of oil, gas and natural gas liquids decreased 53 per cent to $1.5bn in the first quarter, given the significantly lower prices for all three products. Yet Devon drilled 451 wells in the first quarter, compared with 646 in the year-earlier period. Not much of a drop, all things considered, and one that Barclays Capital fears is eating into Devon’s cash flow.
In a research note, Barclays said Devon outspent cash flow by a significant margin.
Devon still has a solid balance sheet with ample liquidity and remains one of the better operators in the Exploration and Production sector, but we are concerned about the company’s largely unhedged position and its ability to live within cash flow for the remainder of the year.
Devon says cash on hand at the end of the first quarter was $397m and unused credit totaled over $2.3bn. The company funded $1.5bn of capital expenditures and paid common dividends of $70m in the first quarter of 2009.