1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Holly LaFon
Holly LaFon
Articles (5571) 

Third Avenue Management Comments on Devon Energy Corp

June 28, 2012 | About:

From Marty Whitman's second quarter 2012 letter:

As discussed in last quarter's letter, a new position was initiated in Devon Common (NYSE:DVN). We added modestly to the position this quarter. Devon Energy Corp. is an Oklahoma-based oil and gas exploration and production company. In April, I attended the presentation of Devon's CEO, John Rickels, at the IPAA Oil and Gas Investor Symposium in New York City. The highlight was the company's discussion of its long-term growth outlook: production is projected to increase from 240 million barrels of oil equivalent ("BOE") in 2011, to 340 million BOE by 2016, representing a 7% annual growth rate. This growth is projected to be driven by high margin oil and natural gas liquids ("NGLs") annual growth of 16% to 18%, while natural gas production declines slightly. The company should retain a very strong financial position throughout this period, as most of the growth is expected to be funded by operating cash flow (the company expects to use only $1.5 billion of its $7 billion in cash over this period).

In early May, Devon reported first quarter results that showed significant progress. The company generated 10% year-over-year production growth, driven by increases in oil and NGLs production of 26% and 21%, respectively. The company's Jackfish oil sands projects in Canada generated a 55% increase in production, while oil production in the Permian basin in Texas, which has been revitalized by the application of horizontal drilling technology, increased 32%. The primary negative factor was low natural gas prices, which declined 35% to $2.34 per thousand cubic feet equivalent ("mcfe"). Fortunately, Devon's realized price was $3.02 owing to gains from its hedges, and the company has about 40% of its natural gas production hedged at $4.42 per mcfe for the balance of the year. Devon Common's valuation is attractive at about five times earnings before interest, taxes, depreciation and amortization ("EBITDA"), a 10% discount to estimated net asset value and $10 per BOE of proved reserves. By comparison, in 2009 and 2010, the company exited its Gulf of Mexico and international operations at a price of about $45 per BOE of proved reserves. Devon Common accounted for 1.2% of the Fund's net assets at quarter end, and the position has been increased this quarter as the stock has declined.


Rating: 3.0/5 (2 votes)

Comments

Please leave your comment:


GuruFocus Mobile App


User Generated Screeners


DBrizanBanks6a
DBrizanBanks6may2016
paulmenezesEPV Growth
DBrizanBanks5may2016
CarstinUS/UK NCAVs
miguelprioreM.Priore
maggers78Oil Screen
philippeCroissance
philippeTres secure2
doniemaherScreen #16 - No Debt, Divs Gro

Select portfolio(s):

  • Loading...

Why you are interested?

Your selection and notes will be stored in your portfolio.

Login to add portfolio
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
FEEDBACK