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August 1, 2018

Devon Energy misses Q2 estimates after ‘misplaced bet’ oil prices

US oil and gas company Devon Energy has missed Wall Street estimates for second-quarter profits, due to a rise in expenses, as well as a ‘misplaced bet’ on the direction of oil prices, offsetting higher oil output.

By Talal Husseini

US oil and gas company Devon Energy has missed Wall Street estimates for second-quarter profits due to a rise in expenses and a ‘misplaced bet’ on the direction of oil prices offsetting higher oil output.

The Oklahoma-based company said its overall costs rose 39% in the last quarter to $2.73bn, resulting primarily from an increase in marketing expenses. Revenue from oil and gas production experienced a fall of 20% to $1.07bn compared to Q2-2017, and production costs rose by 26%.

The company failed to predict higher oil prices going into the quarter leading to costs of $131m to settle the oil derivatives.

The co-founder of energy research company PetroNerds, Ben Montalbano, said Devon Energy hedged 57% of its oil production in Q2 at prices around $5.80 per barrel under average prices.

Oil producers use hedges to lock in their oil at a certain price to guarantee a fixed amount for their output. Some independent oil producers hedged production at $55 per barrel, surrendering much of the quarter’s profits if sold at the higher average oil price.

Devon Energy produced 541,000 barrels of oil equivalent per day (boepd) in the second quarter of this year, up from 536,000 boepd from Q2-2017, a result higher than expected.

Devon Energy president and CEO Dave Hager said: “Operationally, our second-quarter performance was headlined by strong well productivity in the Delaware Basin and STACK, which drove light-oil production above the high end of our guidance expectations. Importantly, we converted this volume growth into higher profits with our access to premium pricing in advantaged markets and through our success in driving both field-level and corporate costs lower.

A spokesman for Devon Energy also said that the company had lost $154m on assets it owned in Oklahoma, which it no longer expects to develop. The oil company’s yearly oil production was cut this quarter to account for discontinued operations following the sale of its stake in oil pipeline company EnLink Midstream to Global Infrastructure Partners, worth more than $3bn.

Hager added: “In addition to our strong operating results, we took a significant step forward in achieving our 2020 vision by further simplifying our asset portfolio through our monetisation of EnLink.

“This highly accretive transaction provides a strategic exit from EnLink at a value of 12 times cash flow, and we’re returning the sales proceeds to our shareholders through our industry-leading $4bn share-repurchase program.”

Over the second quarter, Devon Energy ‘s net loss was $425m compared with Q2-2017 when the company made a profit of $219m. Despite this, revenue rose from $2.17bn in 2017 to $2,25bn this year.

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