The paragraph is a transcript of Devon Energy's Third Quarter 2024 Conference Call. Rosy Zuklic, Vice President of Investor Relations, introduces the call and mentions the availability of the company's earnings release and presentation materials online. She notes that the conference call includes forward-looking statements with associated risks. Rick Muncrief, President and CEO, then highlights the company's strong operational and financial results for the third quarter, achieving a record production of 728,000 barrels of oil equivalent per day, exceeding guidance expectations.

The paragraph highlights the strong well productivity in the Delaware Basin and overall solid base production across five basins, leading to a 12% year-over-year growth in production per share. The company raised its full-year production guidance for 2024 to approximately 730,000 BOE per day, reflecting a 12% increase over the current year's budget. This performance generated $786 million in free cash flow in Q3, with $431 million returned to shareholders through a share repurchase program. The quick closure of the Grayson Mill acquisition enhances their position as a leading U.S. producer, especially in the Williston Basin, where production will nearly triple. Despite market volatility, the company remains focused on maintaining a strong balance sheet and disciplined business model to navigate various commodity cycles. Looking ahead to 2025, the company is committed to operational excellence and improving capital efficiency, relying on their multi-basin portfolio in the U.S.

The paragraph discusses Devon's strategy and outlook for future growth, emphasizing their strong resource base and disciplined financial approach aimed at maximizing free cash flow and maintaining low leverage. With the acquisition of Grayson, they expect 2025 to be a strong year with significant growth in oil and robust cash flow, even if commodity prices decline. The company is focused on shareholder value through dividends and buybacks and is seeing successful operational performance in the third quarter of the current year. They credit their success to innovation among employees and the integration of Grayson Mill, with plans to continue this momentum into 2024.

The article highlights several factors that contributed to the company's strong performance, including a premier asset portfolio, a skilled team, and a disciplined capital program. The Delaware Basin was a major earnings driver, with 60% of capital allocated there, resulting in record production levels of 488,000 BOE per day and a 6% growth rate due to 55 new wells targeting formations like Wolfcamp. The CBR 12-1 development played a crucial role, achieving high production rates and recoveries, and it aided the company's resource strategy by providing further insights. The team is focused on balancing returns, NPV, and inventory while derisking secondary targets in the Delaware Basin.

The team is successfully balancing short-term performance with long-term inventory management in the Delaware Basin, resulting in a 20% increase in well productivity compared to the previous year. Operational efficiencies, including the adoption of simul-frac, have improved completion and drilling efficiencies by 12% and 14%, respectively. This has allowed the reduction of rig activity from 16 to 15, with plans to further decrease to 14 rigs while maintaining output levels. Safety and environmental metrics have also improved. In the Williston Basin, the integration of the Grayson Mill transaction is progressing well and is described as the best integration to date.

The paragraph discusses the recent activities and financial performance of Devon in the Williston Basin. The company is operating three rigs and plans to maintain this activity level. Production from newly acquired assets has exceeded initial expectations, with an investment of $150 million planned. They aim for sustained production of 100,000 BOE per day by 2025 and plan to enhance efficiency through longer laterals and refracs. The acquisition added 500 undrilled locations, boosting future cash flow. Financially, Devon reported strong third-quarter earnings, with core earnings of $683 million and EBITDA of $1.9 billion. Free cash flow improved significantly to $786 million, supported by higher-than-expected production and reduced costs, including benefits from a recent acquisition. This performance allowed for strong shareholder returns.

During the quarter, the company returned $431 million to shareholders through dividends and buybacks, allocating $295 million for share repurchases. They chose not to pay a variable dividend to focus on reducing net leverage, aiming for a $2.5 billion debt reduction target. The plan involves using cash and free cash flow to pay down a $1 billion term loan from the Grayson Mill acquisition and retiring $472 million in senior notes. The company ended the quarter with strong liquidity and a net debt-to-EBITDA ratio of just over 1x. Looking to 2025, they forecast a production increase to 800,000 BOEs per day, with oil volumes reaching around 380,000 barrels per day, thanks to Grayson Mill and operational momentum. Capital spending is projected to be between $4 billion and $4.2 billion, with expectations of strong free cash flow and a yield surpassing the broader market.

The company plans to allocate up to 70% of its free cash flow for shareholder payouts while also working on a $2.5 billion debt reduction program. They aim to repurchase $200 to $300 million in shares each quarter and will use any remaining free cash flow to reduce net leverage. Full guidance for 2025 will be provided in February after finalizing the budget. In the Q&A session, Arun Jayaram from JPMorgan inquired about the drivers of increased well productivity in the Delaware Basin. Clay Gaspar responded, noting a shift in activity to Southeast New Mexico and expressed that the 2025 plan is improving but remains a preliminary guide, with assumptions based on current costs and macroeconomic factors.

The paragraph discusses the company's current productivity and potential for improvement through well placement, completion design, and sequencing that has led to breakthroughs. While secondary zones can sometimes dilute the overall results, effective techniques have yielded strong outcomes in both deeper and shallower zones, suggesting potential for further upside. The company maintains a cautious outlook but is confident in its current position and sees room for improvement. Additionally, following the acquisition of Grayson Mill, the company is identifying opportunities to enhance capital efficiency in the Bakken area, with immediate successes in infrastructure, capital programs, and inventory management. Overall, the acquisition is expected to exceed initial synergy expectations, contributing positively to the company's operations.

The paragraph discusses the potential for growth and improvement through strategic mergers and acquisitions (M&A). The speaker highlights the benefits of combining teams to leverage shared experience and expertise, particularly in optimizing processes like refracking across different regions. They mention the value of integrating a strong team from Grayson and express interest in pursuing additional opportunities similar to the acquisition of Grayson Mills, which are more incremental and less transformational. The speaker emphasizes their consistent strategy of exploring potential opportunities to strengthen the company, with a dedicated team focused on market analysis and internal discussions.

The paragraph discusses the company's strategy of pursuing both organic and inorganic growth, highlighting their effective geoscience and risk engineering teams. They have previously engaged in small "tuck-in" deals and larger asset acquisitions like Grayson Mill. Moving forward, they'll continue this mixed approach. The conversation then shifts to maximizing natural gas realizations in the Permian Basin, focusing on the Matterhorn pipeline and its impact on Waha pricing. There's concern about potential gas oversupply transferring to the Gulf Coast, and the discussion touches on handling bottlenecks with projects like Blackcomb. Jeff Ritenour confirms excitement about Matterhorn's operation, which shifts gas from Waha to the Gulf Coast.

The paragraph discusses the strategic measures taken to manage and optimize the flow and pricing of molecules, particularly with the new Matterhorn pipeline affecting the Waha to Gulf Coast flow. By redirecting capacity to the Louisiana LNG hub, the team aims to mitigate pricing dislocation issues. Despite current challenges like maintenance affecting pipeline operations and Waha pricing, the company is optimistic about improving pricing by the end of the year and into 2025. Kalei Akamine from Bank of America Merrill Lynch inquires about production expectations for 2025, focusing on the potential of the Delaware oil and the strategy for the Bakken region. Clay Gaspar responds that more specific guidance will be provided in February, emphasizing their current soft guidance.

The paragraph discusses the company's strategy for managing its debt. They have set a target to reduce their debt by $2.5 billion by 2028 and have already begun this process by paying off $500 million. The plan is to pay off debt as it matures, with specific amounts due in the coming years: $485 million in the fall of next year and addressing a term loan maturing in 2026. The company feels confident about its financial position and plans to reduce debt while also providing competitive cash returns to shareholders.

In the article's paragraph 14, during a discussion between Scott Gruber from Citigroup and Clay Gaspar, they address future operational expenses (LOE and GPT costs) and completion efficiencies post-quarter four. Gaspar suggests using the 4Q guide as a baseline, acknowledging seasonal increases in downtime. Regarding completion efficiencies, Gruber inquires about potential advancements like e-frac and thermal frac. Gaspar indicates that the company is evaluating various opportunities, noting the industry's shift toward flexible and efficient fleets, particularly those utilizing high percentages of natural gas.

The paragraph discusses the use of natural gas in e-fleets, which are considered 100% natural gas, unlike other fleets that are 60% to 80% natural gas. This provides a cost advantage due to low natural gas prices. The speaker highlights their company's focus on creativity and innovation in maintaining efficiency, expressing confidence in their team's ability to innovate despite not knowing when they might plateau. The paragraph concludes with Clay Gaspar responding to a question about productivity and efficiency trends over the past six to twelve months, confirming that productivity has been stable within a narrow range in the Delaware, influenced by geographic and zonal factors.

The paragraph discusses strategies for enhancing productivity and efficiency in multi-zone well developments. The focus is on optimizing well placement and completion design to improve recovery rates while carefully managing the valuable inventory of opportunities. The company is balancing near-term returns with long-term project value and inventory considerations. By increasing drilling and completion efficiencies, they've been able to reduce costs per well, although working faster can shift future activity forward. This is managed by reducing the number of rigs while maintaining output, leading to productivity exceeding internal estimates. They are also monitoring deflation to ensure capital alignment, noting positive results in the recent quarters.

The paragraph involves a discussion between Neal Dingmann and Jeff Ritenour concerning capital allocation strategies, focusing on dividends and share buybacks. Jeff emphasizes that the company's top priority is the fixed dividend, which they plan to grow in the coming year after finalizing their budget. Beyond dividends, the company favors share repurchases, believing their equity holds significant intrinsic value. Jeff also mentions their past use of a variable dividend, which was aligned with favorable market conditions, but their current focus remains on repurchasing shares.

The paragraph discusses a strategic shift due to recent declines in commodity prices, focusing more on share repurchases and growth in financial instruments. The company values its flexible financial framework to adapt to changing market conditions. There is also a discussion around potential joint ventures in power and nuclear sectors. The team is actively discussing these opportunities with utilities and power pools, seeking the right structure and support. They are exploring innovative ways to connect their resources, such as those in the Delaware Basin, with current electricity demands and price challenges.

The paragraph is a discussion between Paul Cheng from Scotiabank and Clay Gaspar about oil and gas exploration. Clay mentions that as they drill deeper sections, the gas oil ratio generally increases, meaning it gets gassier, but they've seen some positive results in deeper benches that have been oilier than expected. They are conducting tests in the first half of the year to explore these opportunities further. Clay also notes that they are aware of sour gas exposure in the eastern Delaware Basin and have third-party midstream partnerships to manage this risk. Lastly, Paul inquires about inventory backlog, mentioning that with the addition of Grayson, they now have a 10-year inventory life.

The paragraph discusses the company's confidence in its inventory and drilling operations in the Permian Basin, specifically maintaining operations with $50 WTI and $3 gas prices. Clay Gaspar expresses confidence in having a 10-year runway in all five basins, with more confidence in the first five years due to productivity and capital efficiency. He highlights the potential for innovation and efficiency improvements in the later years, with a focus on deeper and adjacent zones. The paragraph concludes with an acknowledgment of the industry's ingenuity and resourcefulness. The passage then transitions to a question from Doug Leggate of Wolfe Research regarding the company's stock performance.

The paragraph features a discussion between Doug Leggate and Jeff Ritenour about the company's approach to managing its balance sheet, debt, and equity. Doug questions why the balance sheet is prioritized over buybacks given oil price uncertainties and the company's $8 billion debt. Jeff responds that while there's an intent to reduce debt over time, the strong balance sheet and business model allow flexibility without urgent debt repayment. The company aims to grow dividends, buy back shares, and reduce debt simultaneously. Doug acknowledges the answer and shifts the discussion to Grayson Mills, referencing a past $5 billion acquisition made when oil prices were higher.

In the paragraph, Rick Muncrief discusses the value of a transaction involving Grayson Mill in terms of forward free cash flow and commodity pricing. At the time of the deal, they estimated pricing around $75-$76 and anticipated long-term fluctuations in commodity prices. Muncrief acknowledges the difficulty in accurately predicting commodity prices but expresses confidence in the transaction based on mid-cycle pricing. The deal was structured with a mix of debt and equity, and despite a decline in commodity and equity prices, he feels positive about the transaction's outcome. He highlights the strength of the Bakken reservoir in the Williston Basin, suggesting no regrets about the deal. Doug Leggate thanks him for the responses.

In the discussion, J. Phillips Johnston from Capital One asks Jeff Ritenour about the company's return of capital strategy, specifically regarding buybacks in varying oil price scenarios. Jeff confirms that their current plan includes a fixed annual dividend of around $575 million and quarterly buybacks ranging from $200 million to $300 million, aiming for over $1.5 billion in cash returns to shareholders. He mentions that, if oil prices rise above mid-cycle levels, they might consider increasing share repurchases or even revisiting a variable dividend, but for now, they are focused on maintaining their current strategy. Any additional cash generated beyond the share repurchase plan could be used to reduce net debt.

The paragraph features a conversation between Charles Meade and Clay Gaspar, discussing Devon's drilling activities in the Delaware Basin. Gaspar explains that with a 14% improvement in drilling days year-to-date, they are estimated to reduce their rigs from 16 to 14 by the first quarter of the next year. They are cautious about dropping rigs too quickly to maintain production levels. Charles then asks Jeff Ritenour about the impact of pipeline maintenance on natural gas prices, specifically regarding the Waha hub, which briefly turned positive but quickly reverted. Ritenour suggests that natural gas prices could stabilize above zero once pipeline maintenance issues are resolved, and there may be incremental oil volumes entering the market due to improved gas egress.

The paragraph discusses the impact of the Matterhorn project on pricing and production behavior, particularly in relation to Devon. While Devon hasn't changed its behavior or increased production due to Matterhorn, the speaker acknowledges that other operators might have. During a conversation with Betty Jiang from Barclays, Clay Gaspar explains the strategic considerations in the Permian Basin, particularly with projects like CBR. He highlights the balance between maximizing well returns, the net present value (NPV) of the pad, and inventory management. The tension between these factors is crucial in optimizing opportunities, as decisions around well spacing and tier zones can affect long-term productivity and inventory life.

The paragraph discusses the adjustments made in drilling strategies to improve productivity, acknowledging tighter or looser spacing adjustments in different zones to maximize efficiency going into 2024. Emphasis is placed on managing controllable factors to enhance productivity and innovation in drilling techniques. The conversation also touches on the benefits of larger projects, like the 21-well project, for efficiency gains in drilling and completion. The prospect of increasing the size of these projects is considered favorable if starting from scratch, particularly after initial developments.

The paragraph discusses the strategic approach to developing various zones simultaneously in a project referred to as "12-1." It highlights the importance of understanding prior development depletion effects to mitigate downsides and enhance productivity. The focus is on large pad development for its efficiency in drilling and completions, emphasizing productivity over cost. The project has exceeded expectations, particularly noted on slide 5. It then transitions to a Q&A with Josh Silverstein from UBS about the value of GME assets and midstream footprint management. Clay Gaspar responds, acknowledging the presence of many midstream assets in the portfolio and the potential for divestiture if beneficial, specifically mentioning the Grayson asset but not detailing a specific plan.

The paragraph discusses the company's strategy for enhancing the profitability and longevity of mature assets by lowering operating costs and extending laterals to meet return thresholds. They plan to build infrastructure on the East side to unlock additional inventory in the Williston Basin, bolstered by Grayson's expertise. The company remains flexible in managing assets, willing to buy or sell as needed, but currently values the Grayson assets. When asked about 2025 plans and capital allocation for other assets like Eagle Ford, Anadarko, and the PRB, the response indicates a maintained direction but with a notable shift towards a larger focus on the Williston assets.

The paragraph discusses a shift in the portfolio composition, with the Delaware Basin's share decreasing from 60% to 50%. The speaker indicates that more detailed information about 2025 will be shared in a future February call. Rosy Zuklic thanks participants for their interest in Devon and invites further questions to be directed to her or Chris. The call concludes with the operator thanking everyone and indicating that the call is over.

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