OREANDA-NEWS. May 15, 2013. Devon Energy Corporation (NYSE:DVN) reported a net loss of USD 1.3 billion or USD 3.34 per common share (USD 3.34 per diluted share) for the quarter ended March 31, 2013.

The quarterly loss was attributable to a USD 1.9 billion non-cash asset impairment charge primarily related to lower oil and natural gas liquids pricing. Adjusting for this non-cash charge and other items securities analysts typically exclude from their published estimates, the company earned USD 270 million or USD 0.66 per diluted share in the first quarter of 2013.

Strong Oil Growth Driven by U.S. Operations
Devon continued to deliver strong oil production growth in the first quarter of 2013. Companywide oil production averaged 162,000 barrels per day, a 14 percent increase compared to the first quarter of 2012 and an 8 percent increase over the fourth quarter of 2012. Driven by the Permian Basin, the most significant growth came from the company’s U.S. operations, where oil production increased 23 percent year over year.

Total production of oil, natural gas and natural gas liquids increased to an average of 687,000 oil-equivalent barrels (Boe) per day in the first quarter. This exceeded the top end of the company’s guidance by 2,000 barrels per day. First-quarter production benefited from better-than-expected results across several core development assets, including Jackfish and Cana-Woodford.

“Our continued focus on oil production growth is successfully transitioning Devon’s production mix to a higher oil weighting, as evidenced by our first-quarter results. Oil and liquids production, our highest margin products, now account for 41 percent of our total production,” said John Richels, president and chief executive officer. “Driven by our success in the Permian, we are on track to grow our U.S. oil production by almost 40 percent in 2013.”

First-Quarter Operating Highlights
Permian Basin oil production increased 24 percent over the first quarter of 2012. Oil accounted for 60 percent of the company’s 68,000 Boe per day produced in the Permian Basin during the quarter.

In the Bone Spring oil play, the company added 20 new wells to production in the first quarter of 2013. Initial 30-day production from these wells averaged 590 Boe per day.

Net production from Devon’s Jackfish 1 and Jackfish 2 oil sands projects averaged a record 54,000 barrels of oil per day in the first quarter of 2013. Compared to the first quarter of 2012, this represents an 18 percent increase in production.

Construction of Devon’s third Jackfish oil sands project is now approximately 60 percent complete, with startup expected by year-end 2014.

In the Mississippian trend located in Oklahoma, the company brought 24 operated wells online in the first quarter. Overall results in this emerging oil play continue to support target economics. Several recent wells with seven- to 30-day initial production rates have averaged from 600 to more than 1,000 barrels of oil per day. These wells also have significant volumes of liquids-rich gas.

The company’s oil exploration program in the Rocky Mountains delivered encouraging results in the first quarter. This activity was highlighted by results in the Powder River Basin where Devon commenced production on five wells targeting the Parkman, Turner and Frontier formations. Initial 30-day production from the five wells averaged 540 Boe per day, including 500 barrels of oil per day.

In the Granite Wash, the company initiated production on two operated Hogshooter wells in the first quarter. The average 30-day production rate from these two wells was 1,250 Boe per day, including 1,100 barrels per day of oil and liquids.

First-quarter production from the company’s Cana-Woodford Shale averaged a record 340 million cubic feet of natural gas equivalent per day. Liquids production now accounts for 41 percent of total Cana-Woodford production and was 78 percent higher than the prior-year quarter.

Net production in the Barnett Shale averaged 1.4 billion cubic feet of natural gas equivalent per day during the first quarter. Liquids production increased 5 percent year over year to 55,000 barrels per day.

Operating Costs Beat Expectations
In aggregate, the company’s pre-tax cash costs of USD 898 million, or USD 14.54 per Boe, were lower than forecasted in the first quarter. Pre-tax cash costs per unit of production were 5 percent higher than the first quarter of 2012 but 4 percent lower than the fourth quarter of 2012. Devon’s cost management efforts and efficient operations offset the impact of high activity levels in oil-focused basins. In general, oil projects are higher margin, but more expensive to develop and have higher operating costs than gas wells.

Midstream Profit Rises; Hedging Position Strengthened
Devon’s marketing and midstream operating profit reached USD 125 million in the first quarter of 2013. This result exceeded the company’s guidance and represents a 12 percent increase compared with the first quarter of 2012. The increase in operating profit was attributable to higher natural gas prices and strong cost management.

The recent rise in natural gas pricing has provided Devon the opportunity to increase its natural gas hedging position. For the remaining three quarters of 2013, the company has protected 1.7 billion cubic feet per day, representing approximately 75 percent of its expected natural gas production. Of this total, 1.0 billion cubic feet per day is swapped at a weighted average price of USD 4.09 per thousand cubic feet. The remaining 0.7 billion cubic feet per day utilize costless collars with a weighted average ceiling of USD 4.19 per thousand cubic feet and a floor of USD 3.55 per thousand cubic feet. In 2014, Devon now has 900 million cubic feet per day of production locked in at a weighted average floor price of USD 4.34.

The company also increased its oil hedging position for 2013. For the balance of the year, Devon has entered into contracts to hedge 135,000 barrels per day of oil production. Of this total, 70,000 barrels per day are swapped at a weighted average price of USD 100 per barrel. The remaining 65,000 barrels per day utilize costless collars with a weighted average ceiling of USD 112 per barrel and a floor of USD 90.

The recent improvement in Canadian heavy oil differentials has provided Devon the opportunity to add attractive regional basis swaps. For the remainder of 2013, the company has 35,000 barrels per day of Canadian heavy oil secured at a USD 22 per-barrel differential to the West Texas Intermediate oil index.