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Devon Energy Corp DVN Stock Quote

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Devon Fair Value Estimate Increased After Eagle Ford Bolt-On; Adding Narrow Moat Rating

Analyst Note

| Dave Meats, CFA |

We have increased our fair value estimate for Devon Energy to $46 per share from $45 after incorporating the company's acquisition of private operator Validus Energy for $1.8 billion. The transaction, announced Aug. 9, will bolster Devon's Eagle Ford footprint with additional 42,000 net acres in the Karnes Trough, a region where well performance typically far exceeds the play average. The new assets are situated in the play's oil-rich band to the northwest, with current production of about 35 thousand barrels of oil equivalent per day (70% oil). Management expects this to grow to 40 mboe/d next year. In addition, the acquired assets contain 350 undrilled locations to add to Devon's drilling queue, along with 150 refrack opportunities (legacy wells that can be cheaply turbocharged by restimulating with hydraulic fracking). The deal will increase Devon's 2022 cash flow expectation, resulting in a 10% hike to the firm's variable dividend, assuming strip prices as of the date of the announcement.

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Business Description

Devon Energy, based in Oklahoma City, is one of the largest independent exploration and production companies in North America. The firm's asset base is spread throughout onshore North America and includes exposure to the Delaware, STACK, Eagle Ford, Powder River Basin, and Bakken plays. At year-end 2021, Devon's proved reserves totaled 1.6 billion barrels of oil equivalent, and net production that year was 572 thousand boe/d, of which oil and natural gas liquids made up 74% of production, with natural gas accounting for the remainder.

333 West Sheridan Avenue
Oklahoma, OK, 73102-5015
T +1 405 235-3611
Sector Energy
Industry Oil & Gas E&P
Most Recent Earnings Jun 30, 2022
Fiscal Year End Dec 31, 2022
Employees 1,600

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