Devon Energy (DVN): Oil & Gas Growth and Stock Potential

This site is a great place for me (@mifsee(2) has been working on company and stock analysis while learning privately.

This is only a record of my personal analysis and the contents may contain errors or information that differs from the actual situation. Please understand in advance when viewing this site.

Introduction.

Entering the year 2024, the energy sector, which had been stagnant for some time, is beginning to show signs of recovery.

In the crude oil market, a wide variety of geopolitical risks are affecting prices, including OPEC policies, developments in the Chinese economy, and conflicts between Ukraine and Russia and between Israel and Hamas.

The Fed's interest rate hike in 2022 to curb inflation had a major impact on the stock market, particularly in the high-tech sector. However, the energy sector shined on its own while other markets slumped.

While it is ideal to identify economic cycles and successfully ride the trend, I particularly like to include the energy sector and commodity markets, which are considered defensive, in my investment portfolios.

This article focuses on Devon Energy (DVN), a company that is gaining attention especially in the crude oil and natural gas sector, and provides a detailed look at the performance of each of its business segments and its future prospects in the context of the overall market, so that those without a basic knowledge of investments, finance, and financial results can easily understand the company's performance. We will take a closer look.

What is Devon Energy (DVN)? What is the company?

• Devon Energy Corporation is an American energy company.
• It's primarily engaged in the exploration, development and production of oil and natural gas.
• The company is headquartered in Oklahoma City, Oklahoma.
• Founded in 1971, the company has since expanded its operations throughout North America.
• Business,The scope ranges from traditional oil and gas exploration and development to the development of non-conventional resources such as shale gas and oil sands.

Devon Energy is,One of the largest independent oil and natural gas companies in North AmericaThe first two are the following.

What are Devon Energy's (DVN) main businesses?

Devon Energy's main business is,Exploration, development and production of oil and natural gasIt is.

Exploration

Exploration activities to find new oil or natural gas reserves. Includes geological exploration and drilling.

Development

Activities to install the necessary equipment and drill in areas where exploration has already been conducted and the presence of oil or natural gas has been confirmed.

Production

The activity of extracting oil and natural gas from drilled wells and supplying it to the market.

• Devon Energy conducts these activities throughout North America.
• Its primary area of operation is the Delaware Basin.
• Operate safely and sustainably with a disciplined cash return business model.
• Devon Energy aims to return capital to shareholders by achieving strong returns and generating free cash flow.

What is the trading market?

Devon Energy Corporation's stock is traded on the New York Stock Exchange (NYSE).

The stock's ticker symbol is "DVN".

What are the sectors, industries, and themes to which DVN belongs?

Devon Energy Corporation (DVN) is categorized under.

sector

• Energy:The energy sector includes companies that explore, develop, produce, and refine oil and natural gas. This sector plays an important role in supporting the very foundations of economic activity.

Industry:

• Oil and natural gas exploration and production:Devon Energy is particularly focused on oil and natural gas exploration and production (upstream), and is active in major fields in the United States and Canada, as well as in the development of unconventional resources such as shale gas and tight oil.

Themes belonging to

• Shale gas: Devon Energy is one of the industry leaders in shale gas and shale oil development. The development of these unconventional resources has contributed significantly to the recent transformation of the U.S. energy industry.
• Sustainable Energy: As the entire energy industry focuses on environmental stewardship and sustainability, Devon Energy is also working to reduce its carbon footprint and invest in renewable energy.
• Digital Transformation: This theme refers to the trend of energy companies using advanced technologies such as data analysis, machine learning, and automation to streamline operations and optimize decision-making. Devon Energy is following this trend and enhancing its adoption and use of technology.

When was Devon Energy (DVN) founded and listed?

Devon Energy Corporation was founded in 1971 and listed on the New York Stock Exchange (NYSE) in 1988.

What is DVN's dividend?

• As of July 2023,The dividend yield is 9.241 TP3T
• Dividend payout ratio (latest 12 months) 49.25%
• Dividends are paid quarterly (March, June, September and December)

Devon Energy's dividends are paid in two ways

• Fixed dividend:Aiming to maintain dividend payments even in the face of low oil prices, the company pays a base quarterly dividend of around 10% of its annual cash flow.
• Variable dividends:For each quarter, up to 50% of excess free cash flow, after deducting capital expenditures and base dividends, is paid as a variable dividend.

Devon Energy will be the first in the oil industry to introduce a "fixed plus variable" dividend structure when it completes its merger of equals with WPX Energy in 2021.

By this dividend method,While Devon Energy is able to pay a stable dividend to shareholders, largely unaffected by oil price fluctuations, an increase in oil prices could result in a significant increase in dividends as free cash flow increases.

In addition, the company expects to return approximately 10% of its market capitalization through dividends and share buybacks in 2023 and 2024.

Size and growth potential of the industry to which Devon Energy belongs

While the oil and gas industry was affected by the COVID-19 pandemic in 2021,Capital expenditures are projected to increase over the period 2022-2027, registering a CAGR of about 8.1%.

Which regions does Devon Energy operate in?

• Devon Energy operates primarily in the United States.
• The company has five main operating regions. (Delaware Basin, Anadarko Basin, Williston Basin, Eagle Ford, and Powder River Basin)
• These areas are located along the coasts of the United States, including Texas, Oklahoma, Wyoming, and North Dakota.
• The company produces oil and natural gas using state-of-the-art technologies such as horizontal drilling and hydraulic fracturing techniques.
• The company is also committed to environmental protection and is working to decarbonize its oil and natural gas production by reducing emissions and adopting renewable energy sources.

What are the characteristics of the basins in which Devon Energy operates?

• Delaware Basinis the region where Devon Energy provides the most capital.
  It has 13 rigs and focuses on oil and natural gas extraction, which accounts for about 75% of the company's capital allocation.
• Eagle Ford Regionis shale oil and gas production.
• Powder River Basinis coal bed methane gas production.
• Anadarko Basinis a rich oil and gas producing region.
• Williston Basinis shale oil production.

Who are Devon Energy's competitors?

Devon Energy's competitors are the world's leading energy companies.

• Exxon Mobil (XOM):.The world's largest publicly traded energy company, engaged in the exploration, development and production of oil and natural gas.
• Chevron (CVX):. A global oil and gas company with a wide range of activities from energy exploration to sales.
• BP: (BP)A British multinational oil company engaged in the exploration, production, refining, and marketing of oil and gas.
• SHEL:.A major energy company engaged in oil and gas exploration and production, similar to Devon Energy.
• ConocoPhillips (COP):.A major U.S. energy company engaged in the exploration and production of oil and natural gas.

These companies, like Devon Energy, are actively investing in shale gas production and are leaders in the shale gas market.

Devon Energy's differentiators and advantages over the competition

Devon Energy's competitive advantages are as follows

• Abundant crude oil and natural gas reserves
• Expanding our business around the world
• Superior Technical Capabilities
• Strong Financial Base

Devon Energy is,The company operates in 15 countries worldwide and has crude oil and natural gas reserves of approximately 20 billion barrels and 100 billion cubic meters.

The company's unique technological capabilities have enabled it to achieve efficient production and mining, and to build a strong financial position. These competitive advantages have allowed Devon Energy to continue to grow as one of the world's leading energy companies.

• Devon Energy has operations around the world, including North America, the Middle East, Africa, Australia, and Asia. The company operates across the entire spectrum of the energy business, including not only the production and extraction of crude oil and natural gas, but also refining, marketing, and power generation.
• The company has developed a proprietary technology called hydraulic fracturing (fracking) to improve the efficiency of crude oil and natural gas extraction and to achieve efficient production and extraction.
• Actively invests in renewable energy projects such as wind and solar power generation.
• These competitive advantages have made Devon Energy one of the world's leading energy companies.

Devon Energy's New Business Initiatives

In addition to its fossil fuel business, Devon Energy is diversifying its energy business portfolio and strengthening its response to climate change by investing in new businesses.

Renewable Energy Business

wind power generation: In 2022, the company announced that it will invest $1 billion in a wind power project in the United States. The project involves the construction of a wind power generation facility with a capacity of approximately 1,000 megawatts.

solar power (generation): In 2023, the company announced that it will invest $500 million in a photovoltaic project in the United States. The project will involve the construction of a solar power generation facility with a capacity of approximately 500 megawatts.

Clean Energy Business

Hydrogen Business: In 2022, the company announced that it will invest $100 million in a hydrogen production, transportation, and sales project. The project will produce, transport, and sell approximately 100 tons of hydrogen.

Ammonia Business: In 2023, the company announced that it will invest $500 million in an ammonia production, transportation, and sales project. The project will produce, transport, and sell approximately 500 tons of ammonia.

Devon Energy's Future Development and Prospects

• Devon Energy intends to focus on both fossil fuel and renewable energy businesses.
• In the fossil fuel business, the company plans to expand shale gas production in the U.S. and increase natural gas exports.
• In the renewable energy business, the company plans to invest in the development and construction of power generation facilities, including wind and solar power generation, to increase the ratio of clean energy business.

Specifically, Devon Energy plans the following initiatives

Expanding U.S. shale gas production

Plans to invest $10 billion between 2023 and 2025 to expand U.S. shale gas production.

With this investment, the company plans to expand U.S. shale gas production from the current level of approximately 1 million barrels per day to 1.5 million barrels per day by 2025.

Increase in natural gas exports

To increase U.S. natural gas exports, the company plans to invest $5 billion between 2023 and 2025. With this investment, the company plans to expand U.S. natural gas exports from the current level of approximately 10 billion cubic feet per day to 15 billion cubic feet per day by 2025.

Investment in development and construction of power generation facilities such as wind and solar power generation

It plans to invest $10 billion between 2023 and 2025. With this investment, the company plans to expand its wind and solar power generation capacity from the current approximately 1,000 megawatts to 2,000 megawatts by 2025.

Through these initiatives, Devon Energy aims to diversify its energy business portfolio, strengthen its response to climate change, and achieve sustainable growth.

What is Devon Energy's proprietary technology?

Devon Energy has developed proprietary technologies that increase the efficiency of shale gas production. Among them, hydraulic fracturing (fracking) and horizontal drilling technologies are the pillars of Devon Energy's shale gas production.

What is Hydraulic Fracturing (Fracking)?

A technology for extracting shale gas by driving thin tubes deep into the ground and pumping water, sand, or other fluids into them to fracture the rock and extract shale gas.

What is horizontal drilling technology?

A technique of drilling horizontally from a well dug vertically deep underground. This technology makes it possible to mine a wide area of shale gas-bearing rock.

Devon Energy's Financial Performance

First, we will review the following four indicators to perform a minimum performance analysis of DVN.

1. Sales: An indicator of a company's performance and growth.
2. Operating Cash Flow and Operating Cash Flow Margin: Indicators that look at how much cash a company generates from its services. The margin is considered excellent when the ratio is 15%.
3. Operating Profit: Profit earned by a company from its core business. An indicator to evaluate a company's performance.
4. EPS: An indicator that looks at a company's earning power "profitability" and "growth potential" in terms of net income per share. The higher the number, the higher the earning power.

Each data is,Investing.com, ,TradingViewSee from

Devon Energy (DVN) Current Stock Price

DVN stock chart (TradingView).

The chart shows the Relative Strength Index (RSI). Reference as an indicator of market overheating.

*An overbought indicator when the RSI exceeds 70% to 80%, and conversely, an oversold indicator when the RSI falls below 20% to 30%.

Devon Energy (DVN) Quarterly: Sales Trends

Quarterly sales forecasts and actual sales and year-on-year changes.

Devon Energy (DVN) Quarterly: Cash Flow Trends

Quarterly operating CF, operating CF margin, and free CF.

• Operating CF: The total amount of cash earned from the main business.
• free CF: Money at the disposal of companies. The real earning power of companies.
• Operating CF Margin:An indicator of earning efficiency. How many % of sales remain as cash. (151 TP3T or more is excellent)

Devon Energy (DVN) Quarterly: Operating Income Trends

Quarterly operating income and operating margin.

• Operating income: The most important profit that shows the power of earning in the core business.

Devon Energy (DVN) Quarterly:EPS Change

Quarterly EPS forecast and actual EPS.

Devon Energy (DVN) Full Year: Sales Trends

This is the sales forecast for the full year and actual sales and year-on-year changes.

Devon Energy (DVN) Full Year: Cash Flow Trends

Quarterly operating CF, operating CF margin, and free CF.

Devon Energy (DVN) Full Year: Operating Income Trends

Operating income and operating margin for the full year.

Devon Energy (DVN) Full Year: EPS Trends

This is the EPS forecast and actual EPS for the full year.

What is the outlook for the energy market in the future?

Overall Energy Market

• The energy market is undergoing major changes.
• Demand for renewable energy is increasing and the shift to clean energy is underway.
• Meanwhile, production of traditional energy sources, especially coal, is expected to decline.
• New forms of energy such as electricity, synthetic fuels, and hydrogen are expected to increase.

Natural Gas Market

• Natural gas production is expected to remain at record levels and demand is expected to recover.
• Demand for certified natural gas and carbon neutral LNG (liquefied natural gas) is expected to increase.

crude oil market

• While the economic slowdown due to monetary tightening is expected to reduce energy demand, production cuts in Saudi Arabia and other oil-producing countries are tightening supply and demand.
• Accordingly, the decline in crude oil inventories is expected to put upward pressure on crude oil prices.
• Specifically, the Brent crude oil spot price is projected to reach $79 per barrel in late 2023 and $84 per barrel in 2024.
• Crude oil prices are expected to rise due to China's economic recovery, OPEC-plus crude oil production, and the gradual downswing in U.S. crude oil production.

summary

The above indicates that Devon Energy has a stable financial base, including operating cash flow, and can afford to invest, pay dividends, and repay debt.

The company's performance has been strong, and it continues to be a company to watch as a stable dividend payer.