Devon Energy Corp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Arun Jayaram - JPMorgan - Analyst : Yes, good morning. I was wondering if you could highlight some of the drivers of the uptick in well productivity in the Delaware Basin. I know you shifted some activity from Monument Drawback to Southeast New Mexico. And maybe, but love to get more details on that. and what you're underwriting in terms of well productivity as we think about your 2025 plan. Hey Arun, this is Clay.

Question: Arun Jayaram - JPMorgan - Analyst : Great. My follow-up is you guys are six, seven weeks into since the close of Grayson Mill. I was wondering, Clay, maybe for you or Rick, is if you could identify any self-help opportunities where you think you could further improve kind of capital efficiency in the Bakken in particular.

Question: Neil Mehta - Goldman Sachs - Analyst : Yes, good morning, Rick and team. I guess the first question is, as you think about your M&A strategy, I guess there are a couple different paths you can look for that transformational transaction, and some have come and gone. But the other opportunity is to look for a bunch of additional Grayson-Milts type of opportunities, which are much more bolt-on in nature. And as you think about M&A, where you've definitely demonstrated an interest in being active, what do you think is the right path? And how are you thinking about maximizing value via M&A?

Question: Neil Mehta - Goldman Sachs - Analyst : Okay. The follow-up is just maximizing your natural gas realizations, particularly in the Permian. You've discussed the in-service of Matterhorn. So I'm curious on how you think that ultimately is going to flow through Waha pricing, which is it has recovered, but not nearly to probably the fair value. And do you think there's risk that this gas oversupply is transferred over to the Gulf Coast? And then maybe as part of this discussion, you could also talk about Blackcomb. and how that resolves potentially the next bottleneck in Permian gas, too. So broader Permian gas question there.

Question: Kalei Akamine - BofA Securities - Analyst : Good morning, guys. Thanks for getting me on. For my first question, I'm also going to take a shot at 25. You kind of addressed the permanent piece of the puzzle that there is an upside scenario there. But in your conservative base case, do you kind of see the Delaware oil flat or up? And the other moving part of that 25 guide is the where you're taking over Grayson. and you're basically landing that production at a lower but more optimal level. Just kind of wondering about the cadence of that block and draw down in 25.

Question: Kalei Akamine - BofA Securities - Analyst : Fair enough. For my follow-up, just kind of thinking about debt reduction, In September, you made a first go at your $2.5 billion target and taking out the $500. In the next several years, before 28, you've got about $2 billion coming due. In the base case, do you take those out as they come due?

Question: Kalei Akamine - BofA Securities - Analyst : I appreciate the comments, guys. Thank you.

Question: Scott Gruber - Citigroup - Analyst : Yes, good morning. How should we think about your LOE and GPT costs going forward post-closing? We got the 4Q Guide. Was there an opportunity to squeeze OpEx lower, or should we use the 4Q Guide as the baseline for 2025?

Question: Scott Gruber - Citigroup - Analyst : OK. I appreciate that. Just thinking about your completion efficiencies, quite impressive. What do you guys think about in terms of driving the next leg? Where do you guys stand on eFRAC deployment? You mentioned the simulFRAC, but are you thinking about eFRAC deployment? Where do you guys stand on that front? and latest thoughts on potentially looking at something like Trimal Track. Just kind of what drives the, what could drive the next leg of completion efficiency gains?

Question: Scott Gruber - Citigroup - Analyst : Don't bet against human ingenuity. Appreciate the call. Thank you.

Question: Roger Reed - Wells Fargo Securities - Analyst : Yes, thank you. Good morning. Kind of two questions. One, to follow up on your comments earlier about not really building in any productivity or efficiency, maybe just a way to look back over the last 12 months, last six months, what those productivity and efficiency trends have been. In other words, if things were to continue along that line, what's sort of the potential for improvement on well costs as you think about it?

Question: Roger Reed - Wells Fargo Securities - Analyst : I appreciate the details and the answer. I'll turn it back. Thanks.

Question: Neal Dingmann - Truist Securities - Analyst : Morning. Morning, guys. Thanks for the time. My first question is likely for you, Jeff, just on capital allocation. I'm just wondering, very generally, any thoughts these days any differently about how you're thinking about the buybacks versus div going forward, and then secondly, on the recent buybacks. Does that include any PE shares, and would you all consider stepping a larger way into buybacks if any of the PEs decide to sell? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 4:00PM, DVN.N - Q3 2024 Devon Energy Corp Earnings Call

Question: Neal Dingmann - Truist Securities - Analyst : Yes, I like that game plan, Jeff. And then just secondly, Rick, for you or Clay, just a broader on potential future JV plans. I mean, specifically, it seems like some of your peers have started talking about power and nuclear. I'm just wondering if you all started any of these conversations for any potential JVs with these type of plans.

Question: Neal Dingmann - Truist Securities - Analyst : Great add. Thanks, Clay.

Question: Paul Cheng - Scotiabank - Analyst : Thank you. Good morning, guys. I'm just curious that as you are trying to do more Q development and looking at the other branches, have you seen a noticeable difference in the gas oil ratio or the sour gas exposure and all that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 4:00PM, DVN.N - Q3 2024 Devon Energy Corp Earnings Call

Question: Paul Cheng - Scotiabank - Analyst : And, Kate, the second question is then on inventory backlog. Now that we have Grayson, I think you're saying that you have a 10-year of the inventory. life on that. And how about in the Permit? If we look at using a, say, call it a $50 WTI and $3 gas price, what is your inventory life and how many wells you need in the Permit per year in order for you to sustain the operation?

Question: Doug Leggett - Wolfe Research - Analyst : Thank you. Good morning, everyone. Guys, I think all of us have been obviously trying to figure out why the stock has had such a tough time over the last period of time. And there's a couple of things you brought up this morning I wanted to try and hit. And the first one is, Jeff, when we hear you talk about 70% free cash return buybacks, and you're going to raise a dividend. But at the same time, you've avoided the variable because of your concerns over the commodity. Well, your capital structures still get $8 billion of debt in a backward-dated oil curve. Why is the balance sheet not getting more attention than a buyback, given the uncertainty that you've yourself laid out this morning on the oil price? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 4:00PM, DVN.N - Q3 2024 Devon Energy Corp Earnings Call

Question: Doug Leggett - Wolfe Research - Analyst : I understand. I guess we cannot think of equity as what's left after debt from the enterprise value, but I understand the answer. My follow-up is on and Grayson Mills. Again, Rick, in your prepared remarks, you talked about over a decade of inventory, and I realize there is no precision here, but we did have a substantially higher oil price when you made that acquisition, that $5 billion deal. As you look at it today at the current forward strip, how do you see the value of the forward free cash flow, the forward asset versus what your planning was at the time that you did the deal? I will leave it there. Thanks.

Question: Doug Leggett - Wolfe Research - Analyst : Thank you, guys. I appreciate the answers.

Question: Phillips Johnston - Capital One Securities - Analyst : Hey, thanks for the question. Just a clarification for Jeff on the return of capital strategy. If I heard you right, you're sticking to the 70% target. And I think you said you'd expect $200 to $300 million of buybacks each quarter to sort of get you to that 70% target at the strip. I just wanted to clarify. what we might expect in an upside oil price scenario. We just stick to the $200 to $300 million and let the return fall below 70% in order to accelerate the reduction in net debt or would you actually boost the absolute buyback to stick to the 70%? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 4:00PM, DVN.N - Q3 2024 Devon Energy Corp Earnings Call

Question: Phillips Johnston - Capital One Securities - Analyst : Sounds good. Thanks, Jeff.

Question: Charles Meade - Johnson Rice & Company - Analyst : Yes, good morning, Rick, Clay, and Jeff, and the whole Devon team there. Clay, I want to go back to your prepared comments, and you were specifically talking about Delaware basin activity levels, and I think you were referencing slide six, so you've addressed this a bit. But you've got a 14% improvement in drilling days year-to-date over 23, but if we think about about the delta in how many rigs you need to run going forward versus 24. Is that number maybe a little lower than that 14% as far as to keep the same drilling footage? What do you have to run?

Question: Charles Meade - Johnson Rice & Company - Analyst : Got it. Okay. Well, thanks for that clarification. And then One question I'd like to ask is, let's see if you want to take a stab at this, and this relates to Matterhorn. So Jeff, I think you gave some good detail there about the pipelines going into having some maintenance, because one of the big surprises was that Waha flipped. It was positive for it seemed like a couple of days, and then it went right back negative again. But I wonder if you could give us an outlook on when do you think we're going to see any kind of durable return above zero for natural gas. And also maybe one of the big questions that we've batted around with clients is how much, if any, incremental oil volumes come to market now that there's more gassy grass. So if you can take a stab at either or both of those, it'd be great.

Question: Charles Meade - Johnson Rice & Company - Analyst : Got it. Thanks for that answer. Appreciate it, Jeff.

Question: Betty Jiang - Barclays - Analyst : Hello. Hi. A lot of questions have been asked. I just have a follow-up on the Permian. The CBR multi-dome, multi-well project is pretty impressive. So how big is the opportunity set to repeat these type of large-scale projects like the CBR going forward? And then as you phase in more Tier 2 zones, do you think you will see any impact on the average productivity in the Permian and how much that could extend your inventory life in the Permian?

Question: Betty Jiang - Barclays - Analyst : I appreciate that. Maybe just on the efficiency standpoint, I mean, the 21 well project, these type of larger projects do allow for greater efficiency gains, both on drilling and completion side. What do you see as the average project size going forward? Is there more of these larger-sized projects going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 4:00PM, DVN.N - Q3 2024 Devon Energy Corp Earnings Call

Question: Betty Jiang - Barclays - Analyst : Understood. Thank you.

Question: Josh Silverstein - UBS Equities - Analyst : Hey, thanks. Good morning, guys. The GME assets came with a big midstream footprint. How are you thinking about the value of this asset now that it's in-house? Are there opportunities or a need to expand the footprint, or could this be a potential divestiture target accelerated debt reduction plans.

Question: Josh Silverstein - UBS Equities - Analyst : That's helpful. And then within the 2025 plans, how should we think about the capital allocation to the other assets that we really haven't discussed here today, Eagleford, Anadarko, and the PRB? Are these assets just in casual harvesting mode? Is there any uptick or downtick in terms of a percentage there? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 4:00PM, DVN.N - Q3 2024 Devon Energy Corp Earnings Call

Question: Josh Silverstein - UBS Equities - Analyst : Got it. Thanks, guys. Thank you, sir.