No. 2 Devon Energy: Poised for long-run gains as natural gas prices rise
BY D.R. STEWART World Staff Writer
Sunday, September 16, 2012
9/16/12 at 7:31 AM
Devon Energy Corp., like much of the energy sector, did not perform memorably in the second quarter, but it has strong prospects in the long run, industry analysts say.
"As the natural gas market continues to recover, so will Devon," said Michael Abboud, vice president and trust investment officer for the Trust Company of Oklahoma. "There is a lot of upside."
Devon is a leading independent energy company engaged in the exploration, development and production of oil, natural gas and natural gas liquids. The company's operations are concentrated in various North American on-shore areas that extend from the Canadian arctic to the Gulf Coast of the United States.
Devon's portfolio includes 13 million acres, two-thirds of which are undeveloped.
In the second quarter, Devon's net income was $477 million, or $1.18 per share, compared with 2011's second quarter net income of $2.74 billion, or $6.48 per share.
Second-quarter revenue was $2.56 billion, a 20.5 percent decrease from last year's second quarter revenue of $3.22 billion.
Compared with the same time a year ago, the company's 2012 second-quarter average daily production was 2.57 billion cubic feet natural gas, down 2.7 percent; 148,600 barrels of oil, a 25.5 percent decrease; 102,000 barrels of natural gas liquids, up slightly, and 678,900 barrels of oil equivalent, a 2.8 percent increase.
Phillip Bell, vice president of Financial Planning Resources Inc., said he likes Devon because low natural gas prices are prompting manufacturers and businesses to switch fuels.
"It's going to increase demand very substantially over the next 10 years," Bell said. "The number of power plants using gas to produce electricity has grown tremendously. Fertilizer producers are using natural gas. Steel and aluminum plants are coming back on line because the source of energy is natural gas. Devon will be a good stock pick with growing demand in front of them."
In late August, Devon's share price was consistently above $60, about midway between the 52-week low of $50.74 and the high of $76.34.
Bruce DeShazo, vice president and financial adviser at American Heritage Investments, said Devon's strong financial position - $6.1 billion in cash or short-term investments on June 30, up 82 percent in the last year - allows the company to be flexible and to develop its existing inventory of energy assets until it can capitalize on rising natural gas prices.
"I think their shares will continue to grow," DeShazo said. "They're focusing on the right things."
Abboud said Devon is a quality company that is well run and without excessive debt.
It's a venture that's building towards the future," Abboud said.
Potential roadblocks for Devon include continued low natural gas prices, Abboud and DeShazo said.
Bell said federal government energy policies also could be a problem.
"If erratic and incorrect policies are put in place," Bell said, "it could lead to demand leveling off."
Address: 20 N. Broadway, Suite 1500, Oklahoma City, OK, 73102-8260
Chairman: John Larry Nichols
President/CEO: John Richels
Symbol (Exchange): DVN (NYSE)
Operation: An independent energy company involved primarily in oil and gas exploration, development and production, the transportation of oil, gas and natural gas liquids, and the processing of natural gas.
Original Print Headline: Devon poised for long-run gains
D.R. Stewart 918-581-8451
Devon Energy's operations range from the Gulf Coast of the United States to the Canadian arctic. Associated Press file