The operator welcomes everyone to the Devon Energy Fourth Quarter and Full Year 2023 Conference Call. Scott Coody, Vice President of Investor Relations, introduces the speakers and mentions that the earnings presentation can be found on the company's website. Rick Muncrief, President and CEO, discusses four key themes: Devon's accomplishments in 2023, improved outlook for 2024, the company's resource portfolio, and strategic priorities for free cash flow allocation. He also mentions that the company had a solid fourth quarter with production exceeding guidance.

Devon has achieved their 14th consecutive quarter of free cash flow and increased their stock buyback. They have had a successful year with production growth and high returns on capital employed. They plan to continue with a steady capital program and have approved a 10% increase in their fixed dividend payout. In 2024, they expect to have slightly elevated spending in the first half of the year, but anticipate higher volumes and capital efficiency for the remainder of the year.

In 2024, the company plans to focus 70% of their capital in the Delaware Basin, with a goal of increasing well productivity by up to 10%. They have a large inventory in the basin and expect to generate significant free cash flow, which will be used to strengthen their balance sheet and potentially buy back stock or pay dividends. The company believes that their current low valuation presents a great opportunity for stock buybacks.

Slide 19 visually illustrates the compelling value proposition of Devon, with energy representing a small portion of the S&P 500 but contributing a significant amount of EBITDA. This is due to the industry's potential for growth and the misconception of hydrocarbon demand. With global energy demand expected to increase, Devon is well-positioned for future growth and provides significant equity upside. The team exceeded operational targets in the fourth quarter, driven by improved uptime, increased efficiencies, and better well productivity. Slide 5 shows the trend of efficiency gains and strong well productivity for Devon.

The company's consistency over time demonstrates the quality of their assets and execution capabilities. The Delaware Basin was the most significant contributor to their capital efficiency in the fourth quarter, with 60% of their capital being deployed there. They brought online 62 new wells and expanded their DUC inventory, allowing them to add a fourth completion crew. The top performers in the quarter were several large pads in the Cotton Draw and Stateline areas, with 11 3-mile laterals showcasing the stacked pay potential and achieving impressive production rates. The company also delivered record-setting drilling and completion times, with one project in the Stateline area being named after a style of playing the banjo.

The company has had success with an 8-well pad in the Wolfcamp A, with high production rates and plans to bring online 215 wells in 2024. They are focusing on the best parts of their acreage and utilizing multiple targets in the Wolfcamp B for better efficiency and productivity. The company is confident in their ability to deploy more capital to the core of the Delaware Basin due to infrastructure improvements, including processing and gas takeaway expansions, water handling capabilities, and investment in power infrastructure. They are currently ahead of schedule in their 2024 plan and will now shift their focus to the Eagle Ford.

The integration of the Validus acquisition led to a 56% increase in production in 2023. The team successfully captured synergies and improved operations, resulting in a 15% decrease in production costs and a 30% improvement in completion cycle times. The company also set a record for spud to rig release time. The Eagle Ford provides promising opportunities for resource upside, and the company plans to focus on capital efficiency and balanced activity in the coming year. In the Rockies, the company has assets that can provide growth and free cash flow, particularly in the Powder River Basin where well productivity has improved. The SHU 3x well achieved peak production rates of 1,500 BOE per day with a record drilling performance.

In 2024, the company's focus will be on optimizing production, making selective investments, and generating $300 million in cash flow in the Williston asset. They have already seen success in their capital program, with production reaching 15,000 barrels per day. They also saw growth in the Anadarko Basin, with an 8% production increase. They plan to continue drilling in this area and focus on developing the liquids-rich window. The company's operating cash flow for the fourth quarter of 2023 was $1.7 billion, exceeding expectations and representing the highest quarterly total of the year.

Devon's strong cash flow of $827 million in the fourth quarter allowed for a full year free cash flow of $2.7 billion, one of the highest in the company's history. This is a testament to the success of their disciplined strategy. The company plans to allocate 70% of their free cash flow for cash returns and the remaining for improving their balance sheet. They prioritize share repurchases over a variable dividend and have already repurchased 5.2 million shares in the fourth quarter. They plan to continue buying back shares through open market purchases and have a $3 billion buyback authorization. The company also increased their fixed dividend by 10% and declared a variable distribution, believing that dividends are a great way to reward shareholders and contribute to total returns over time.

The company's dividend framework allows for flexibility in returning cash to shareholders, and their balance sheet has strengthened with cash balances increasing and low leverage. Their financial strategy is working well, with consistent generation of free cash flow, share repurchases, and a strong dividend yield. The company plans to continue improving their balance sheet and expects a significant improvement in capital efficiency in 2024.

The company has improved its capital efficiency in the Delaware Basin, which has a deep and high-quality resource base. This will drive growth and cash returns for many years to come. The call is now open for Q&A, with a focus on operational inflection. The company has expressed frustration with last year's production volumes, but believes there is a positive setup for investors going forward. The team has done well in navigating difficult weather conditions.

The company has seen increased productivity and is confident about maintaining crude volumes in the next few years. The interviewer asks about well productivity and the company's ability to meet their oil target for the year. The company's executive explains that they have been making strategic investments and have seen improvements in well performance, which is just starting to be reflected in public sources.

The company is expecting to see a 10% increase in well productivity in the Delaware Basin in 2024, despite a small impact from a recent storm. This is due to a refocus on core areas and improved infrastructure. Completion optimization is also a contributing factor to the productivity gains.

The speaker discusses the company's approach to improving completions and mentions their success in this area. They also address the topic of mergers and acquisitions, stating that their strategy has not changed and they will only pursue opportunities that meet their high standards and create value for shareholders. They also support consolidation in the industry.

The speaker emphasizes that the company's portfolio has not changed and they will continue to be active and disciplined in their decisions. They also mention that buybacks are attractive at the current stock levels. The questioner asks about the decision to favor dividends in the fourth quarter and the speaker clarifies that this is due to timing and that their focus going forward will be to deliver 70% of their free cash flow to shareholders through a fixed dividend, which they plan to continue growing annually.

The speaker discusses the company's focus on share repurchases and a variable dividend in the near-term. The improvements in operating efficiencies, such as days drilled and completed, are attributed to the highly talented and motivated team. The team continues to find ways to improve and there is still more to come.

The speaker is excited about the company's future and expects to regain public confidence in 2024. They are looking forward to sharing their success with the team. The next question is about the company's buyback strategy and the speaker explains that they see it as a preferred allocation due to the undervalued nature of their shares compared to the market and the sector.

The company is focused on cash returns and plans to have most of them go towards share repurchases. There is a misconception that the company is increasing activity in Delaware, but they are actually maintaining the same rig count and reducing capital in other areas. This reduction is not permanent and is just a temporary measure as they figure out the situation in the Bakken. It will prolong the Williston Basin's opportunity to generate free cash flow.

The company found that they were pushing too much capital too quickly to their asset in the Delaware Basin, which led them to take pressure off the team and selectively fund projects. They have seen great returns and have more to come. They feel confident in their infrastructure and are focused on avoiding unnecessary shut-ins. They also have high-quality offset operators in the basin.

The speaker discusses the success and potential of the Eagle Ford area in the company's operations. They mention testing downspacing and refracturing existing wells, resulting in increased production and profitability. The capital budget for the year has a wide range due to factors such as deflation, turning lines, and midstream spending.

The speaker discusses the efficiency of their company and how it may impact their performance in the upcoming year. They also mention the potential for increased activity and opportunities in the Eagle Ford asset, and highlight the success of the Validus acquisition in the past 12-18 months.

The speaker discusses the company's decision to own and operate their own drilling and completions assets. They also mention exceeding expectations in the Validus development plan and having constructive discussions with their joint venture partner in the Eagle Ford. The speaker is optimistic about the refrac program and expects long-term sustainability. The other speaker adds that there will be a drop in capital but still single-digit production growth and potential for upside in the asset. The next question is about the 10% improvement in productivity in the Permian, which the speaker clarifies is based on a 10,000-foot lateral and may potentially increase in the future.

Clay Gaspar discusses the consistent efforts to drill longer laterals and the company's ability to deliver three-mile laterals. He also mentions that the land mix sometimes limits this, so the company will likely stick to drilling north of two miles. In regards to the first quarter guide, Gaspar explains that the oil production trend is slightly better, but the weather impact is larger. In response to a question about infrastructure, Gaspar says that all areas are a focus and there is no specific area with a bigger constraint.

The speaker discusses the importance of avoiding constraints in their operations and the proactive steps they have taken to address potential infrastructure challenges. They have built their own electrical infrastructure and are working with partners to ensure they are prepared for any unforeseen challenges. The speaker then shifts to discussing their approach to M&A and asks for clarification on the topic.

Rick Muncrief, the speaker, is asked about recent deals and whether Devon has the scale it desires. He responds by saying that he is happy with the current scale and that the company is always looking for opportunities to add resources at an attractive value for shareholders. However, they will maintain discipline and balance short-term accretion with long-term considerations. They have a deep resource base and are a 50-year-old company, so they must be thoughtful about any potential deals.

Rick Muncrief, the CEO of the company, emphasizes the importance of demonstrating their execution and working with outside investors. He also mentions their focus on staying as oily as possible and the potential of natural gas in the future. The company is currently interested in oil-prone basins and their Delaware Basin completion crews.

The speaker discusses the composition of the four fleets currently being used for fracking and mentions the addition of a fourth crew. He also highlights the efficiency and competition among the teams and the constant pursuit of improvement. The other speaker adds that they have more simultaneous fracking planned for the future and have been planning for this for the past 12 months. They also mention the importance of planning well site locations for better efficiency.

The company is seeing great results from increased simultaneous fracturing opportunities and is testing new methods of tying pads together. The team has been doing amazing work and adding value to the bottom line. The company is also incorporating new landing zones in the Wolfcamp B into their development plans for 2024 and beyond. These landing zones were tested and optimized in 2022 and 2023.

The company has been working on a project that has moved to the front of the pack and is expected to significantly benefit the company. The Delaware asset is not expected to be a standout growth asset, but will play a role in the company's overall growth. The company is pleased with the year-over-year performance of the asset and has been able to build extra DUCs that will benefit the company in the first half of this year.

Rick Muncrief explains that the Delaware basin is expected to see growth in both oil and gas production, driving the company's overall growth. He also discusses the increasing focus on carbon capital in the company's budget, citing changing regulations and the potential for low-volume wells to be plugged in the future.

In this paragraph, the speaker discusses the impact of regulations on the oil and gas industry and how Devon is preparing for them. They mention studies by API and other trade groups and state that the company wants to stay ahead of the curve and be strategic in addressing these regulations. They also mention that the capital earmarked for these projects will primarily be used for retrofitting existing facilities to lower emissions and stay ahead of future regulations. The speaker emphasizes the importance of staying ahead of regulations to continue providing energy to fuel the world.

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