Updated Aug 6 at 1:55pm ET.
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Crude oil prices climbed on Thursday after Iranian state news published a plan that would place new conditions on ships moving through the Strait of Hormuz. This narrow waterway is a critical chokepoint for the world's oil supply, and any threat to traffic there usually pushes prices higher.
As a U.S. oil producer, Devon Energy generally benefits when global oil prices rise. Higher prices for crude mean the company earns more for every barrel it pumps from its wells in basins like the Permian and Williston.
Source: CNBC
The company reported second-quarter earnings of $1.57 per share, beating the $1.40 that analysts expected. Revenue reached $7.42 billion, well ahead of the $6.01 billion forecast. This performance was fueled by a rise in oil prices and the successful integration of Coterra Energy, a merger that closed in May.
Production reached the top end of the company's targets, averaging 503,000 barrels of oil per day. Management also kept a tight lid on costs, with capital spending coming in about 2 percent below their own estimates. For those who own the stock, this result shows the combined company is already hitting its stride and generating significant cash that can be used for dividends and buybacks.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
The company is working with a tech firm called HXMX to use artificial intelligence for picking formation tops, which is the process of identifying where different layers of rock begin and end underground. A study in the Williston Basin showed the software can be as reliable as expert geoscientists. While this is a small technical project, it shows how the company is trying to use automation to speed up the work of finding and drilling for oil. If these tools work at scale, they could help the company map out its drilling sites more efficiently and at a lower cost.
Source: Business Wire
The company is reportedly weighing a sale of its oil and gas holdings in the Eagle Ford and Powder River regions, which could be worth more than $4 billion. These assets are located in Texas and Wyoming and are part of the company's broader portfolio of shale fields.
If a deal happens, it would signal that management is narrowing its focus to its most profitable areas, like the Permian Basin. Selling these assets would provide a large pile of cash that could be used to pay down debt or return money to shareholders through buybacks and dividends.
Source: Reuters
Susquehanna raised its price target for the stock from $57 to $63. This change suggests the firm sees more value in the company's current operations and production levels than it did previously. A higher price target from an analyst is a sign of confidence in the company's ability to generate cash, though it does not change the actual value of the business today.
Source: Susquehanna
Analysts have kept a steady stream of positive ratings on the stock throughout the summer. Most analysts, 46 out of 64, rate it a buy, and the average target price of $61 suggests a 42% gain from today's price.
The company has a habit of clearing the bars set by analysts, beating profit expectations in five of the last eight quarters. This suggests management is disciplined about its spending and production targets.
| Expectation | |
|---|---|
| EPS | $1.22 |
| Revenue | $6.64B |
Seeking Alpha · Opinion · Aug 6
Seeking Alpha · Opinion · Aug 5
Reuters · Aug 4
GlobeNewsWire · Press release · Aug 4
Business Wire · Press release · Aug 4
Reuters · Jul 24
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