Devon Energy Q3 2024 Earnings Call Summary

Management Comments

1. Historical and Forecast Production Levels

• Q3 2024 Production: Record total production of 728,000 BOE/day, broken down as:

  • Oil: 335,000 barrels/day

  • Emphasis on Delaware Basin, with record basin-level production at 488,000 BOE/day, largely from Wolfcamp, Bone Spring, and Avalon formations.

• 2024 Full-Year Forecast: Revised to average ~730,000 BOE/day, reflecting a 12% increase year-over-year.

• 2025 Forecast: Expected to reach 800,000 BOE/day, including record oil volumes projected around 380,000 barrels/day.

2. Wells Drilled, TILs, and DUCs

• Delaware Basin: 55 new wells turned online in Q3, primarily targeting Wolfcamp, Bone Spring, and Avalon zones.

• CBR 12-1 Development Project: 21 wells turned online across six zones, including Wolfcamp A and B and Bone Spring, with a 30-day average production rate of 3,300 BOE/day per well.

3. Realized Commodity Prices, Hedging, and Break-even Costs

• Hedging Strategy: Major gas hedging via the Matterhorn pipeline, redirecting ~90% of molecules away from WAHA to Gulf Coast hubs to avoid WAHA basis exposure.

• Cost Management: Strategic hedging to capitalize on Gulf Coast pricing, with further plans to mitigate pricing risks through additional midstream routes.

4. Rig and Frac Crew Numbers

• Rig Count: Reduced from 16 to 15 rigs in Q3 2024; plans to drop to 14 rigs in Q1 2025, while still meeting production goals due to efficiency improvements.

• Operating 4 frac crews on a pro forma basis, with 3 electric fleets. All wells in 2024 are completed using SimulFRAC, except occasional spot crew work.

5. New Oil and Gas Pipelines, Processing Plants, or Infrastructure

• Matterhorn Pipeline: Recently completed and now operational, providing takeaway from the Permian Basin; Devon is leveraging this to manage WAHA gas pricing issues.

6. Market Activity and Oil Market State

• Market Overview: Management acknowledged recent market volatility but remains confident in the ongoing demand for diverse energy sources, particularly oil.

7. Merger and Acquisition Activity

• Grayson Mill Acquisition: Closed acquisition in late Q3 2024, enhancing production capacity with an estimated 100,000 BOE/day in the Williston Basin. The acquisition includes 500 undrilled locations, adding long-term resource potential.

Q&A Summary

1. Historical and Forecast Production Levels

• Grayson Mill Assets: Production in 2025 expected to maintain ~100,000 BOE/day in the Williston Basin, supported by focused capital investment and new well development.

2. Wells Drilled, TILs, and DUCs

• Williston Basin: Planned development includes both new well drilling and tactical refracturing of existing wells to support the 100,000 BOE/day production target.

3. Realized Commodity Prices, Hedging, and Break-even Costs

• WAHA Gas Pricing: WAHA gas prices are expected to improve as pipeline maintenance concludes, with the Matterhorn pipeline aiding Devon’s shift to more favorable Gulf Coast pricing.

4. Rig and Frac Crew Numbers

• 2025 Rig Plan: Operations to stabilize at 14 rigs, balancing efficiency with production targets.

5. New Oil and Gas Pipelines, Processing Plants, or Infrastructure

• Williston Basin Infrastructure: Planned infrastructure build-out on Grayson assets to unlock additional drilling inventory and enhance efficiency in the Williston Basin.

6. Market Activity and Oil Market State

• Permian Basin Gas: Discussions on potential gas oversupply issues at the Gulf Coast as more takeaway capacity comes online, with Devon staying vigilant on gas flow and pricing.

7. Merger and Acquisition Activity

• Future M&A Strategy: Management remains open to selective acquisitions similar to Grayson Mill, focusing on bolt-on opportunities that enhance operational or market synergies without high leverage risks.