As Devon Energy (DVN)’s second-quarter earnings release (on August 6) remained in-line with our and consensus estimates, we prolong to see positive aspects in a number of sections that we believe to lead grew resource potential and net asset value (NAV), which should result into enhanced operating performance and debt adj. growth.
We believe that in the Delaware Basin, company provided more clarity nearby drilling inventory with an revised net prospective acreage (which includes Wolfcamp, Delaware, Bone Spring, Leonard, Rest) count of 825,000 (compared to 500,000 net risked acres), and wells per area appears to be highly conservative based on what rest operators are basing growth plans on, brining growth potential to net asset value estimation. Additionally, with plans to surge the Delaware Basin rig count to number of 20 by year end 2015 vs. 2012 at present, we believe there could be growth to existing greater than 20% oil growth outlook in 2015.
We also think that the Eagle Ford rise is on its way in spite of collecting constraints, and upper Eagle Ford and Lavaca County could expand inventory depth otherwise running room around. The increased fracs have revived Cana salvage and returns, and company plans to operate 10 rigs (gross operated or non-operated) in 2015. Additionally, company indicated the hefty oil Access Pipeline (having 50% ownership) in which $1billion has been invested till date; together with the Victoria Express pipeline (50 million barrels per day Eagle Ford) as prospective drop down contenders to EnLink, where company’s ownership is valued around $8 billion. While Jackfish Phase 3has started steaming, we believe it should quickly add to solid oil and free cash flow growth. Powder River Basin indicates additional growth with latest Parkman wells gaining encouraging results and a fourth rig planned by this year-end.
Sine qua non, we view a bundle of likes and keep on seeing positive aspects from company’s high graded asset base in relation to net asset value (NAV) and production growth. We maintain company shares’ rating to “Outperform” with an $87 target price while we slash EPS estimates to $1.51 (from $1.60) in third quarter, $1.64 (from $1.69) in fourth quarter, $5.89 (from $6.01) in 2014 and finally $6.55 (from $6.73) in 2015.