Devon will issue special sale-related dividend, it announced along with second-quarter results
Devon Energy shareholders can expect to see a special dividend later this year.
On Tuesday, the company announced it will issue a $100 million dividend Oct. 1 to shareholders of record on Aug. 14.
The dividend shakes out to 26 cents per share — a gift that Devon CEO Dave Hager said he doesn’t expect shareholders of any other exploration-focused energy company in the U.S. will get the remainder of this year.
He attributed it to the company’s ability to move up the planned closure of its deal to sell its Barnett Shale assets to Oct. 1.
“Most companies are really concerned about preserving all of the cash that they can because of their financial situations,” Hager said. “The decision to issue a special dividend is consistent with our disciplined strategy and demonstrates our firm commitment to return increasing amounts of cash directly to our shareholders.”
Tuesday’s dividend announcement was made at the same time the company posted second-quarter results for the year.
The company reported it lost $670 million, or $1.78 per share, on total revenues of $394 million for the quarter.
In the second quarter of 2019, the company had earned a net income of $495 million, or $1.19 per share, on total revenues of $1.8 billion.
As for the special dividend payment, Devon’s board of directors authorized it after Devon and Banpu Kalnin Ventures accelerated their planned closing on a deal where the latter will get Devon’s Barnett Shale field assets for close to a half-billion dollars.
After accounting for purchase-price adjustments, which include an upfront deposit of $170 million and allocated revenues and expenses from the effective date, Devon expects to receive a net cash payment of more than $300 million when the deal closes.
The sale agreement also provides an opportunity for Devon to receive additional payments of up to $260 million if commodity prices improve.
Those additional payments could be triggered annually, provided that Henry Hub natural gas prices average $2.75 a million British thermal units or better or that West Texas Intermediate oil prices average $50 a barrel or better during each of the next four years, starting on Jan. 1, 2021.
The special dividend will be paid in addition to the regular, quarterly cash dividend of 11 cents per share the company also continues to award to shareholders.
Commodities hurt bottom line
Devon’s quarterly results were impacted during the second quarter by dramatically lower commodity prices.
Derivative contracts the company had on its books helped cushion the blow somewhat, but improving commodity prices during the period also required mark-to-market writedowns on the contracts’ values as of June 30.
From an operational standpoint, however, Devon officials had plenty to highlight.
Its average daily oil production of 153,000 barrels during the second quarter was 3,000 barrels more than what it had predicted (even after a 10% curtailment), while its capital expenditures were 10% lower than what it had forecast and its general/administrative expenses fell during the quarter by 31%, year-over-year.
The company revised its predicted average oil production for the year higher by 2,500 barrels a day and revised its predicted gathering, processing, transportation and lease operating expenses for the year lower by 15 cents per barrel of oil equivalent.
“That is always a good thing, to have more production when you are spending less money,” Hager said.
The company stated it expects it will generate $1.6 billion in excess cash flow in 2020, assuming West Texas Intermediate oil pricing stays at $40 a barrel or better the remainder of the year.
The company also continues to possess $4.7 billion in liquidity, with $1.7 billion of that as cash.
Devon also announced it plans to resume its efforts to reduce its debt, aiming to repurchase up to $1.5 billion through open-market purchases and tender offers that officials estimate will save the company about $75 million on an annual run-rate basis.
Officials stated Devon continues to align its workforce to match go-forward activity levels, achieving more-efficient field-level operations.
During the second quarter, it was running nine rigs and one completion crew in its Delaware Basin field in New Mexico — the area where the company is seeing the best value when it comes to a return on investment.
It continues to appraise its Niobrara Shale holdings in the Powder River Basin, has boosted production in the Eagle Ford Shale field and continues to work with Dow on plans to begin drilling wells in the Anadarko Basin.
“As we navigate through the challenges presented by COVID-19, Devon continues to transform how it operates,” said Jeff Ritenour, its chief financial officer.
“The aggressive reduction of cash costs across our organization is expected to drive down per-unit expenses by an incremental 10%, versus our second-quarter 2020 results,” Ritenour said.