Scott Coody welcomed everyone to Devon Energy's Second Quarter Earnings Conference Call and was joined by Rick Muncrief, the President and CEO, Clay Gaspar, the Chief Operating Officer, Jeff Ritenour, the Chief Financial Officer, and other members of the senior management team. Rick Muncrief then discussed how Devon's second quarter performance was strong due to their disciplined business model, quality asset portfolio, team's execution capabilities, and cash return framework.

Devon Energy has had impressive success since introducing an industry first framework in late 2020, deploying $12 billion towards dividends, share buybacks, debt reduction and bolt-on acquisitions. This has resulted in 2x the value of Devon’s pro forma market capitalization from a few years ago. In the second quarter, oil production was at a record high, with 323,000 barrels per day, thanks to higher completion activity in the Delaware Basin. This was enabled by a fourth frac crew and improved cycle times.

The Delaware wells had excellent productivity and the Eagle Ford had a successful redevelopment test. Production is expected to grow in the third quarter due to higher completion activity and the company has set several operational records. Service cost deflation is occurring due to reduced natural gas activity which will positively impact the company's cost structure as the year ends.

This paragraph discusses the company's expectations for deflationary trends in the near future and how it has returned money to shareholders through dividends and buybacks. It also mentions that the company is on track to meet its 2023 plan goals and is expecting a strong outlook for 2024 due to current market fundamentals. The company plans to invest at levels that will sustain their productive capacity and any savings from lower service costs will be passed onto shareholders.

Devon's second quarter operating results demonstrated that their business is performing well and building momentum. 60% of their capital activity was deployed in the Delaware Basin, which allowed them to run a consistent program of 16 rigs and place 76 wells online in the second quarter, up more than 80% compared to the first quarter. They also highlighted their Mule development in Eddy County, New Mexico, which is an example of the successful appraisal work they do each year with 10-20% of their capital budget.

This 11-well project in the Wolfcamp yielded successful results, with average production of 3,100 BOE per day and 44% oil cut. The results de-risk and enhance the economic expectations for approximately 100 Wolfcamp B locations in the Cotton Draw area. The Delaware team also made progress in drilling and completions efficiencies, such as reducing spud release times for 2-mile laterals to below 15 days and increasing completion cycles by 9%. In the Eagle Ford, a 3-rig program placed 29 gross wells online, resulting in a 9% increase in productivity from the previous quarter.

In the second quarter, strong well productivity was achieved from a balanced mix of development and appraisal activity in the Eagle Ford resource play. The LP Butler pad had an impressive average 30-day rate of 3,600 BOE per day, with a 56% oil cut. The [indiscernible] unit tested infill spacing with an average 30-day rate of 2,000 BOE per day and a company record of 2000 feet per day. In the Williston, volumes increased 4% quarter-over-quarter to 56,000 BOE per day due to improved weather, higher up times on existing producers, and successful adjustments to completion and production techniques.

Devon has seen positive results from their deployment of new techniques on two pads and have identified significant refract opportunities across hundreds of producing wells in the field, providing them the optionality to deploy steady reinvestment in this play for multiple years to come. In the Powder River Basin, the team has made substantial progress, establishing repeatable commercial results with three-mile laterals and they plan to test 4-wells per section later this year. In the Anadarko Basin, production volumes grew 10% from the previous quarter due to the ramp up and completion activity funded by a drilling carrier from their Dow joint venture, with well costs consistently coming in below pre-drill expectations and initial flow rates from several wells exceeding 3,000 BOE per day.

Clay and Jeff discuss the company's progress in the second quarter of 2023, including the efficiency gains that allowed them to exceed midpoint guidance on production, the completion activity in the Delaware Basin, and the strong regional oil pricing. They anticipate the remaining carry agreement with Dow to provide sufficient runway for the next 18-24 months and plan to bring on 10 new wells by the end of the year. They remain confident in their capital spending guidance for the full year.

In the second quarter of 2023, the company experienced a positive trend in oil pricing that resulted in additional cash flow. There was some weakness in natural gas and NGL realizations, but this is expected to improve in the second half of the year. Operating expenses were in line with expectations, but there will be a minor increase in per unit cost due to a recently executed water handling joint venture. The company generated $1.4 billion of operating cash flow and was able to generate free cash flow for the 12th consecutive quarter. This free cash flow was used to fund a fixed plus variable dividend of $0.49 per share that will be paid at the end of September.

Jeff discussed the company's financial position, which includes an additional $200 million of stock repurchased, a low net debt-to-EBITDA ratio of 0.7x, and $242 million of debt retired at quarter end. He concluded by reiterating four key messages: the business is performing at a high level, the positive trajectory is supported by capital efficiency, the resource base is strengthening, and the company will continue to contribute to financial results in the future.

Clay Gaspar explains that the company's production profile for the back half of the year is slightly below consensus due to accelerated activity and the resulting lumpiness in productivity. He emphasizes that the company still feels good about their full year guide and is committed to creating value over production volume growth.

Jeff Ritenour explains that the water handling contract in the Delaware Basin will bring increased flexibility and scale, resulting in higher operating costs at the asset level. However, the company has an equity stake in the joint venture, which will allow them to receive distributions that will offset the additional LOE costs. Additionally, they will have the opportunity to monetize the asset in the future, as well as save capital on water infrastructure in the next couple of years.

Rick Muncrief and Clay Gaspar discussed the importance of consistency in their production levels, and how they prefer to look at their production on an annual basis. They also mentioned the need to optimize their operations, and that they will be running a fourth frac crew in the first half of 2023 to consume DUCs, and generating DUCs in the second half when they are running three frac crews.

Rick Muncrief discusses the continued consolidation of the Delaware Basin and the need for companies to have a disciplined approach when considering acquisitions. He notes that many of the private consolidations that have occurred recently were due to companies having impressive performance, but running out of inventory. He also states that companies like Devon have not had an appetite to take on the steep decline rate that would come with acquiring these assets.

Rick Muncrief of Devon Energy discusses the consolidation of companies in the industry, noting that Devon will be a beneficiary of such consolidation due to its disciplined approach and focus on building a stronger and more durable company. Clay Gaspar then explains that they are encouraged by the results of the 30 refracs they have done in the Eagle Ford, noting that there was no refracs included in the Validus acquisition, and that they are seeing more material upside in both redevelopment and refracs.

Clay Gaspar explains that the better returns from their investments compete with the wells they are drilling today. He states that it is too early to tell the exact quantity and return, but the top half they have derisked they feel confident about. He then goes on to discuss the Anadarko and Williston basins, noting that they are gassier and have a higher gas-oil ratio. He also mentions that they are focused on getting the gas through the meter and sold, rather than flared, and that their flaring numbers are continuing to decrease.

Arun Jayaram from JPMorgan asked Rick Muncrief and Clay Gaspar about their projected CapEx for 2024, which Gaspar estimated would be similar to the second half of 2023. Jayaram then asked Jeff Ritenour about the low realizations for natural gas and NGLs in the Williston Basin, which Ritenour attributed to the fact that gas is not the majority of the production mix there.

Clay Gaspar discussed the importance of assessment work and the benefits of Wolfcamp B appraisal success. He explained that the assessment work allows them to de-risk opportunities and that successful appraisal results can jump to the front of the line to compete with the most near-term capital efficient investments.

Jeff Ritenour explains that the company is running 16 rigs and four frac crews in the Delaware Basin, which is running ahead of schedule and creating cost savings. He states that the company will continue to focus on per well full cycle costs and how it affects the bottom line of the company. As far as capital allocation, Ritenour states that the company will remain balanced in their approach and not make any material changes.

Jeff Ritenour states that the company is focused on rate of return and returns generated in their play, and is agnostic to oil or gas when it comes to allocating capital between Anadarko and Permian. He also states that the oil mix in their production has remained consistent on a year-over-year basis.

Jeff Ritenour discusses the focus on oil production in the Delaware Basin and how it is the most capital-efficient asset today. Doug Leggate then asks a question about the capital intensity of the company's peers and how it relates to their own spending. Ritenour explains that the increase in capital intensity is due to a mix of factors, including inflation that started in the back half of last year.

The company has seen an increase in capital efficiency relative to its peers due to the roll-off of contracts into a higher price environment. However, when looking at capital efficiency on an absolute basis, the company is still competitive with the top-tier companies in the space. The company expects capital efficiency to improve as deflation is expected in the back half of the year and into next year.

Clay Gaspar discussed the challenges faced in the Williston area due to the RimRock acquisition, specifically with the nature of the depletion of the crosscut wells. They have implemented solutions to ensure that the wells produce consistently, get unloaded, and that the proppant stays in place. This is essential to producing the wells effectively.

The speaker is discussing the challenges of the first quarter and the success they have had in the Anadarko Basin. They have been able to develop a good recipe for the wells going forward and have seen positive results. The speaker is open to expanding the partnership with Dow, as they have had a successful partnership so far. They are also open to the possibility of bringing in other partners to continue to progress the asset from a development standpoint.

The management team at Pioneer Natural Resources is actively exploring and assessing their current assets. They feel confident in their current runway, but are looking for ways to consolidate their 400,000-acre position in the Delaware. They have already found success in their Wolfcamp B risk assessment and are looking to continue to do similar assessments to meet or exceed expectations.

Rick Muncrief discusses the importance of assessing their current acreage position in order to compare and contrast executing on that, holding what they have versus buying and consolidating more. He goes on to talk about the capital efficiency trend as they move from the Delaware Basin to other basins like the Anadarko and Eagle Ford, Williston, and PRB, and the need to focus on the highest returns. He also mentions the potential of restimulation and tighter spacing, and how they have learned more about the resources they have.

Clay mentioned that the Bakken is the most mature of the plays and basins, and that they will mature over time until a change in technology or new intervals are found. Jeff then added that they are focused on growing the fixed dividend as they gain confidence in their base game plan and framework. He stated that it is the priority one when it comes to cash return framework and that it only falls behind financial strength and the balance sheet.

Clay Gaspar discusses the differences between the Eagle Ford and Williston basins in terms of refrac and redevelopment opportunities. In the Williston Basin, the opportunity lies in restimulating wells that were under-stimulated, while in the Eagle Ford, the opportunity is more from a reservoir standpoint. The breakeven costs for refracs in the Eagle Ford are competitive with what is currently being drilled, offering a solid return.

Devon's Investor Relations team hosted a call to discuss their plans for the future. Rick Muncrief discussed how the Eagle Ford restem opportunities would have good returns in a $50 world with a $3 Henry Hub. However, they are only allocating a small percentage of their capital budget to assessment work. Scott Coody concluded the call by thanking everyone for their interest and inviting them to reach out to the Investor Relations team with any further questions.

This summary was generated with AI and may contain some inaccuracies.