Q3 2023 Devon Energy Corp Earnings Call
Hello, everyone and welcome to Devon Energy's third quarter earnings Conference call.
At this time all participants are in a listen only mode.
This call is being recorded.
Oh, no I would now like to turn the call over to Mr. Scott Coody, Vice President of Investor Relations, Sir you may begin.
Good morning, and thank you for joining us on the call today last night, we issued an earnings release and presentation to cover our results for the quarter and updated outlook throughout the call today, we will make references to the earnings presentation to support prepared remarks, and these slides can be found on our website also joining me on the call today are Rick Moncrief, our president and <unk>.
CEO Clay Gaspar, our Chief operating Officer, Jeff Ritenour, our Chief Financial Officer, and a few other members of our senior management team comments. Today will include plans forecasts and estimates that are forward looking statements under U S. Securities Law. These comments are subject to assumptions risks and uncertainties that could cause actual results to.
Differ materially from our forward looking statements. Please take note of the cautionary language and risk factors provided in our SEC filings and earnings materials with that I'll turn the call over to Rick.
Thank you Scott, it's a pleasure to be here. This morning, we appreciate everyone taking the time to join US for today I plan to focus my comments on the trajectory of our business for the remainder of 2023 and highlight the steps were taken to further improve capital efficiency as we head into 2024.
Now, let's start with a brief review of our financial and operating performance.
In the third quarter, Devon delivered a production per share growth rate of 10% year over year. This strong growth rate was fueled by our franchise asset in the Delaware basin accretive acquisitions and opportunistic share repurchases over the past year on a barrel of oil equivalent basis. Our total volumes were within the guidance range.
But oil volumes were slightly softer due to select well performance in the Williston, coupled with monitor infrastructure could stick constraints in the Delaware.
We will cover the Delaware in greater detail later in the call, but these constraints.
Constraints were temporary and have a visible pathway to correction.
With the industry's ongoing build out of infrastructure.
Turning to capital for the quarter with our disciplined plan, we've kept reinvestment rates to just over 50% of cash flow.
This resulted in a free cash flow more than doubling versus the second quarter, and we rewarded shareholders with a 57% increase to our dividend payout.
In the fourth quarter, we expect Devon production to be around 650000 Boe per day of which oil is expected to approximate 315000 barrels per day.
As a reminder, we dropped her for Frac crew in the Delaware mid year to replenish our DUC inventory and the impact of this lower completion activity will lead to a moderate decline in our production versus the third quarter.
We've also modeled in the effects of project timing and weather impacts some of which we've already experienced however, we do expect our financial performance for the fourth quarter to be very strong with operating margins set to expand and free cash flow.
To be quite robust.
Overall, the fourth quarter setup to round out another successful year financially for our company and while we have certainly faced some challenges. This year. We're on track to deliver one of the best years in our 50 plus year history in terms of returns and free cash flow generation.
Importantly, as we head into 2024, our focus remains the same we intend to deliver growth on a per share basis, and maximize free cash flow generation, while balancing the need to appropriately reinvest in our business for the future.
To achieve these objectives, we have incorporated our learnings over the past year.
Push service costs, lower and sharpened our capital allocation to deliver a step change improvement in well productivity and efficiency.
On slide eight we outlined the key attributes underpinning our improved outlook for 2024 first and foremost with continued volatility in commodity pricing. We believe it has improved it is prudent.
To conduct good construct a capital plan with consistent activity levels to maintain production at a level of around 650000 Boe per day with oil at approximately 315000 barrels per day.
With ongoing ongoing macro uncertainty and whats the ample spare capacity that OPEC plus possesses we have no intention of adding incremental barrels into the market at this point in time.
Disciplined approach reflects our commitment to pursuing value over volume and shareholders will benefit from our high graded slate of development projects designed to enhance capital efficiency and returns on capital employed.
To deliver this production profile in 2024, we anticipate a capital investment of three three to $3 6 billion.
This level of spending represents an improvement of 10% compared to 2023, and we expect to fund this program at pricing levels below $40 per barrel.
In summary, we see delivering flat production for 10% less capex.
Now turning to slide nine our improved capital efficiency in 2024 is driven by concentrating more than 60% of our spending in the Delaware basin.
Our plan will shift a higher mix of activity to multi zone wolfcamp developments in new Mexico, which is the core of the play as infrastructure constraints have eased over the past and will continue over the coming months. We also plan to high grade capital activity across other key assets in our portfolio.
This includes limiting Williston basin activity to only our highest impact opportunities and decrease in activity.
Appraisal activity in the Eagle Ford with this refined capital allocation, we expect to improve well productivity by 5% to 10% in 2024 anchored by our franchise asset in the Delaware Basin and.
And lastly, we expect.
Our capital efficiency would also benefit from improved service cost as contracts refresh over the next few quarters now.
Now with this operating plan in 2024.
We are positioned to deliver free cash flow growth of around 20% in 2024 at $80 WTS pricing.
As you can see on slide 11, with this strong outlook that translates into a uniquely attractive free cash flow yield of 11%, which is up to three times higher than what the broader equity markets can offer simply put this is one of the most critical aspects of the Devon plan.
On slide 12, with a stream of free cash flow as we've done in the past we plan to target a cash return payout of around 70%, which is in line with our average annual payout to shareholders. Since we unveiled this industry first model in 2020.
A key priority heading into next year is to continue to grow our fixed dividend. We believe the certainty that comes with a fixed dividend is valuable shareholders and is better capitalized within our equity price, especially if the yield is competitive with that of the broader markets with the remainder of our free cash flow, we will stay flexible.
As we always have been by judiciously allocating towards the best opportunities whether that be increased stock buybacks variable dividends or taken additional steps to improve our balance sheet.
However, given our current stock price, we expect to pursue buybacks at a level that will most likely result in our variable payout being below the 50% threshold in the near term to capture the incredible value. Our equity offers at these trading levels.
And with that I'll now turn the call over to clay for rundown of our recent operational performance.
Thank you Rick and good morning, everyone. Today I plan to focus my comments on our Delaware Basin operations as well as outlining the actions we plan to take to sharpen our capital allocation and drive efficiencies in our business over the next year.
Let's begin on slide 15, with an overview of our Delaware basin activity, which accounts for roughly 60% of our capital spending for this year.
With this level of investment during the quarter, we ran a consistent program of 16 rigs and brought on 59 new wells.
Well productivity was very strong with 30 day rates, averaging 3000 Boe per day.
And improved average productivity combined with the benefits of elevated completion activity in the first half of the year.
Drove another quarter of production growth from our franchise asset that said our growth rate in the quarter was held back by a few wind and lightning storms that impacted power for our facilities as well as our third party infrastructure. These storm stranded a few thousand barrels per day during the quarter the infrastructure and the wells are back online.
And we don't see any negative impacts on the ultimate recovery of these wells on.
On slide 16, you can see our impressive well productivity in the Delaware basin during the quarter.
It was highlighted by three important projects on the far left of the slide Devins top result for the quarter was the Bora Bora project.
Developing the upper Wolfcamp at our Todd area with 30 day rates from Bora Bora, averaging 4600 boe's per well.
With the cost coming in under budget.
These returns are expected to be well into the triple digits for this project.
Another noteworthy project with our CBR 17 development in Texas.
We're 30 day production rates averaged 4100 Boe per day per well.
<unk> results were enabled by a 3000 acre trade completed about a year ago that are highlighted on the previous call.
This key trade, which unlocked our ability to pursue extended reach laterals by extending our laterals to two miles for this project. We added several million dollars of net present value and this project alone.
On the right. Another key result for US was the Haflinger project, where we co developed multiple zones in the Wolfcamp a and b.
While rates were restricted due to infrastructure recoveries on this or attract on track to reach $1 5 million Boe per day per well excuse me per well.
With solid returns from our Wolfcamp B appraisal to date, we now plan on bringing forward the value of this opportunity by co developing the upper wolfcamp where possible in the future activity.
Looking forward to the project level details.
Slide 17 provides a nice visuals, the well well productivity, we achieved in the Delaware basin during the third quarter.
On the left as I touched on earlier 30 day average rates for the Delaware Wells, We brought online reached 3000 Boe per day.
These high impact wells exhibited a 20% plus improvement from the first half of 2023, reaching the highest quarterly level in more than a year.
This performance is great to see given our well productivity over the past year has been held back slightly by elevated appraisal requirements and infrastructure constraints. The 2023 infrastructure constraints resulted in a shifting of or a portion of our capital to less prolific areas in the basin and at times constrained peak rate.
Across a subset of our new wells.
As you can see on the right hand side of the slide we also made progress improving our cycle times across our drilling and completions operations in the basin.
Third quarter results were highlighted by our completion space exceeding 2000 feet per day for the fifth consecutive quarter.
And we drilled several pace setting wells that achieved spud to rig release times of less than 15 days.
With the momentum we've established we believe we can build upon these results and cap capture further efficiencies as we head into 2024.
Turning to slide 18, as Rick touched on earlier, we're excited about the plan we have in place to drive improved well productivity in the Delaware with our 2024 plan with.
With the ongoing industry build out of infrastructure in the form of electrification compression localized processing and downstream takeaway, we plan to allocate approximately 70% of our capital to the Delaware basin and specifically to the core.
Of new Mexico.
While we can optimize the remaining activity across our acreage in Texas.
As you can see on the chart on the left by refining our focus on high impact Wolfcamp zones in the core of the play with less appraisal requirements, we expect Delaware productivity to improve by 10% in 2024.
Looking beyond 2024, we have a long runway of high value inventory in the Delaware that positions Devon to deliver highly competitive results for the foreseeable future.
As we've discussed in the past we've identified more than a decade of risked inventory across the Delaware and we expect to steadily replenishes inventory over time as we successfully characterize the many upside opportunities across the stack play resource.
In addition to our internal estimates there are plenty of third party services that can provide an in depth evaluation of our resource base.
A great example of this on slide 19 that references the recent and various Permian inventory report.
While I won't go through all of the details in the slide there are three key takeaways you should have first one of the we have one of the largest remaining inventories of any operator in the Delaware.
Second.
The quality of this inventory is excellent with returns exceeding a PV 10 breakeven at.
At $40 <unk>.
And third we possess significant upside to our risked resource for many known geological viable zones that have yet to be fully characterized.
So in summary, with the Delaware accounting for roughly 60% of Devins total risk resource, we're going to be delivering some excellent results for quite some time.
And with that I'll turn the call to Jeff for a financial review Jeff.
Thanks, Craig I'll spend my time today, reviewing our financial performance in the third quarter and discussing our cash return approach for the future.
In general revenues and expenses came in line with expectations for most categories in the third quarter, However, high natural gas price realizations and lower tax rate due to R&D tax credits taken in the quarter drove our earnings beat versus the Wall Street consensus.
Putting it altogether operating cash flow totaled $1 7 billion in the third quarter with capital reinvestment rates at 52% of cash flow generating $843 million of free cash flow and more than two fold increase versus the prior period.
With this free cash flow a key priority for us was to strengthen our financial position in August we paid off $242 million of maturing debt and we bolstered liquidity with cash balances increasing by 56% to 761 million at quarter end with these actions Devin exited the quarter with a net debt to EBITDA ratio of <unk>.
Just over half a turn moving forward, we plan to add to our financial strength and each quarter by committing to around 30% of our free cash flow back to the balance sheet. This will allow us to further paired down our absolute debt balance with repayment of roughly $1 billion of maturities coming due in 2024 and 2025 and maintain.
A minimum cash balance in excess of $500 million.
Cash returns to shareholders increased materially in the third quarter based on third quarter results, we declared a fixed plus variable dividend of <unk> 77 per share an increase of 57% from the prior quarter. This dividend payout represents an attractive annualized yield of over 6% at today's share price. In addition to the <unk>.
Evidently we have a $3 billion share repurchase authorization in place to date, we've repurchased 40 400 million shares at a total cost of $2 1 billion with this program. We are on pace to decreased devins outstanding share count by up to 9%.
Although we temporarily paused our repurchase activity in the third quarter retire debt and cash and excuse me and to build cash we continue to review buyback or we continue to view buybacks as a critically important tool for us to compound per share growth for investors over time as Rick stated earlier, we will target 70% of free cash flow for cash returns to shareholders.
Moving forward with the recent weakness in our share price investors should expect us to be an aggressive buyer of our equity once we come out of the earnings blackout and the general weighting of cash returns to be balanced towards share repurchases and our growing fixed dividend over the near term with that I will turn the call back to Rick for some closing comments.
Thank you, Jeff I would like to close today by reiterating a few key messages from our prepared remarks number one we plan to incorporate our learnings from our past year tightened a few things up and refine our capital allocation in 2024 to deliver a step change improvement in capital efficiency.
Number two.
This improved capital efficiency is anchored by our franchise asset in the Delaware Basin, where we expect well productivity to improve by up to 10% year over year.
Number three with our long duration resource base, we have a depth of inventory to deliver sustainable results through the cycle and number four we are deeply committed to a disciplined pursuit of per share value creation and are carefully designed cash term framework that has the flexibility to allocate free.
Cash flow across multiple avenues to optimize shareholder value.
We've demonstrated that and we will continue to do so in the future.
And now with that I'll now turn the call back over to Scott for Q&A. Thanks, Rick We'll now open the call to Q&A. Please limit yourself to one question and a follow up this will allow us to get to more of your questions on the call today with that operator, we'll take our first question.
Perfect. Thank you, ladies and gentlemen, I would like to ask a question. Please press star one on your telephone keypad.
Star one on your telephone keypad.
First question comes from Doug Leggate from Bank of America Merrill Lynch. Your line is now open. Please proceed.
Thank you good morning, everyone and thanks for having me on.
Rick obviously the issues in the Bakken in North Dakota are obviously, well telegraphed at this point.
Your commentary in the slide deck suggests that youre, taking steps to improve productivity I wonder if you use what walk us through what some of those steps are in terms of how the market can get confidence in the results and at the same time, perhaps you could address your latest thoughts on inventory depth and not in the asset.
Okay.
You bet. Good question, you know one of the things that we've talked about an improving productivity really across the company.
Is focusing.
On the capital program as we go into 2024, obviously throughout this past year.
We've done a fair amount of assessment across our resource base and virtually all of our basins and so I think that what we've learned we're going to watch the performance from from.
Those wells that we did the assessment on it and Furthermore, as we've talked about.
Really really zone in on some of our most productive areas and so I think while the market may not fully appreciated the value of assessment work, we know over long haul. That's how you you truly build inventory organically and it's very very helpful. For us. So I think that's the thing that investors need to.
To watch words, we're going to stay very focused here.
And can you repeat the second part of your question.
Yeah, and just for Mr. Katie. This is this is not a second question.
Yes.
Okay great.
I wasn't expecting that.
Yes inventory yes.
In North Dakota.
Right well I mentioned, the that's how you can build inventory organically and I think that's the thing I really value about the staff that we have here, we've got the depth and the breath and we talked about the resource that we have here in house and so at times, you need to spend a little money assessing some of those resources, that's what we have.
In 2023, and so what you're hearing us say today, we've learned some things we're tightening some things up and we're going to watch them performance and we're going to be very very focused going into 'twenty. Four play you have anything you want to add to that Doug I'd, just add to that I. Appreciate Rick's comments and one thing we've learned we've been very open.
The amount of surprise, we've had specifically around some of the partially depleted wells that we've drilled.
We've got an operationally better.
Made three or four very specific changes that improved how we develop those wells, how we bring them online how we keep them online small things like artificial lift and even the design of the completion itself and so as we get better that improves the productivity ultimately the economics of those those.
Wells in the later life and so those are learnings that eventually will apply to lots of other basins and feel real confident that given that same circumstance. We now have a better arsenal of tools to approach those wells.
Kevin watched with interest thanks for that.
Gosh I'm torn on what to ask next but I'm going to go with the variable dividend question M&A was the other one rig but im guessing you would answer that.
I guess, Jeff.
It sounds like you are starting to recognize that.
Opportunity to transfer value from debt to equity with your balance sheet comment, but you haven't ruled out the variable dividend despite.
The comments around buybacks why not just take the variable off the table because if I may say so it seems to me that your share price hasn't had any value recognition for that whatsoever.
Yes, I appreciate it Doug and yes, no we we understand.
Is that the market has had for share repurchases and that's certainly going to be our bias going forward, but frankly, we always think the variable dividend can be a component of our framework and expect it to be as we move forward I. Appreciate your comments on the balance sheet, because again I'll just remind folks is always that that's our that's our primary priority.
As we work our way into any year in any budget, we want to make sure we maintain the financial strength and as you heard in my opening comments were.
We're committed to continuing to reduce our absolute debt level beyond that we're going to grow the fixed dividend as we've talked about as well, we always take that up with our board in the first quarter of <unk>.
Coming year and as we as we highlighted in our materials, we expect to grow the fixed dividend again next year beyond that I think at least in our view, it's pretty clear that the equity price is disconnected from the fundamentals of our business.
And moving forward here in the near term, we're going to lean in on the share repurchases and as Rick said in his comments.
That could have an impact on the on the variable dividend going forward, but I don't want to exclude it as a as an option for us because frankly, we think it is a key component of continuing to deliver cash returns to shareholders, but without doubt our bias is going to be towards the share repo here in the near term.
No that's very clear thanks, very much guys.
Thank you Doug.
Our next question comes from Nathan Kumar from Mizuho. Your line is now open. Please go ahead.
Hey, good morning, guys and thanks for taking my question Rick.
It's good to see the refocused.
Energy around that.
I wanted to touch a little bit.
About 3000.
<unk> locations in the Delaware.
Deck as you go back to the new Mexico Wolfcamp. The specific area that you are targeting can you talk a little bit about how much of that inventory is focused on that area alone.
Yes.
A lot of it to be honest with you.
And I think that we've we've actually talked here internally. If you think about our rig count about two thirds of our rigs and we are running.
Or in that area. So that's a good way to look at it.
So two thirds of that number that you see is us.
Pretty accurate, we think clay you want to add to that.
As we think about kind of the 70 30 split it does parallel.
Our inventory and so we think about most of our inventory being on that north side clearly in 'twenty. Three we were very clear we wanted to do a little bit more assessment work spread some of that out as I mentioned in my prepared remarks, we had the reach in a little bit deeper in some of the areas that we wouldn't normally have kind of reach into that bolt in that kind of diluted a little bit the average productivity.
<unk> that we delivered I think working through that inventory or excuse me working through that assessment work and really having a better understanding of where that sits we're now leveraging those learnings into the activity in 'twenty four and then also allowing that inventory that infrastructure to mature a little bit also allows us to leverage back the benefits of the <unk>.
We did in 2003 for the benefiting 'twenty four so theres a good parallel there and I don't see is falling out of too much out of sync with that inventory.
Tori run.
Great. Thanks.
As a follow up Rick I'm going to not assume that you would want to answer the M&A question.
Mystery consolidation.
It's certainly front and center you have been part of that consolidation in the past.
Can we maybe get some thoughts updated thoughts on how youre viewing the go forward path for Devin either as an independent company.
As a consolidator.
Yes, I think it's something very obviously very topical in light of some of the recent transactions out there.
Really.
No you've been covering this sector long time, many many of people on the call are but it's really it's part of the fabric.
Of this industry sector.
The one thing you won't change is our approach.
We've always had a been very compelled to just have a high bar high bar be very disciplined and make sure that it fits within the framework that we have.
As you've heard Jeff talk.
About in my prepared remarks, I mean, right now we see one of the greatest most clear cut opportunities is just ourselves with our with our share repurchases and so that's that's how we're looking at it I do think that that.
That youll continue to see consolidation, we've been on record as saying we can.
We support continued consolidation in the sector, we think it's the right thing to do.
For investors.
As far as evidenced participation I'm going to go back to those to those key elements and that's we're going to have a high bar will be very disciplined be very thoughtful and make sure we can.
So I'll, let to shareholders that it's the right thing to do.
Thanks, Rick Thanks for the answers.
You bet.
Sure.
Our next question comes from Neil Mehta from Goldman Sachs. Neil Your line is now open. Please go ahead.
Yes. Good morning team. The question I had was the first question was just around the cadence of production and obviously.
Q4, and Q1 and a little softer and then a nice ramp over the course of the year can you talk about.
The confidence interval you have around.
That ramp as we get into 2024.
Help the market.
Comfortable on the oil side in particular and Thats been a little bit Shakier this year.
Yeah. Thanks, Neal appreciate the question.
We've been staring at this kind of saddle in fourth quarter first quarter for quite a while we don't provide detailed guidance typically ahead of the coming quarter and so.
Having the activity really that fourth Frac crew in the front half of 'twenty three.
Benefited certainly in this quarter and we will see a rollover in the fourth and first before we build that DUC cadence back up again, and we're able to bring that forth frac crew up that provide some lumpiness, we realize that that's not ideal we're trying to make sure that we telegraph not just this fourth quarter, but the first quarter has a little bit of a saddle as well I think once we get that frac.
Crew back we have staff reestablish the higher rate, it's pretty it's steadier throughout the year. So think of 234 being a little bit flatter the fourth could come down just a little bit, but probably not quite as much as the saddle as we saw in this fourth and first.
Coming quarters.
Okay. Thank you and then.
Talk about the Capex guide for 2024.
Lower than consensus which scared.
Although partially offset by lower activity lower production. So maybe just talk about what gets you to the top end of what you can see the bottom end of the range.
The modeling that went into building that 'twenty four 'twenty.
Neil.
So we do a lot of work as you can imagine we talked last quarter about some of the work we do it with the board and back in September really looking out five and 10 years and that leads to a kind of a more focused look this time of year in November we have a call with the board we are really starting to kind of firm things up.
During that process, we run lots of sensitivities to what if we think about different diffley.
Deflation cadences, how that impacts us different capital allocation and what we've gotten to is we feel really good about this plan refocusing as we've talked about on the Delaware basin benefiting from the work that we've done in 'twenty three around some of the assessment work and so leveraging into that and we feel really good about the continued folk.
<unk> of the activity that we have.
And paring back on some of the other basins that probably could use a little bit more breathing room, and then feel really good about.
The deflation that we've baked in call it roughly 5% or so.
That we have in hand today, we feel really good about those numbers the balance the remaining 5% is a little bit pair back in activity and then of course, we are striving to exceed those expectations. Every every day in our shop.
Thanks, Tim.
Thanks Neil.
Our next question comes from Scott Gruber from Citigroup Scott. Your line is now open. Please go ahead.
Yes, good morning.
I wanted to get a bit more detail.
On the infrastructure constraints in the Delaware It sounds like it's starting to improve.
So peak rates constrained as it is still impacting where your rigs are running today.
Yes. The answer is yes, when do you think.
These constraints can be fully alleviated.
Scott the good news is we are in the in the hottest basin in the World. The Bad news is when Youre in the hottest based on the world Youre always going to have some kind of restraint constraint and so we work really closely with our third parties on trying to stay ahead of that in fact, we do proactive work on even modeling their own infrastructure and we've done some big projects this year.
The state line.
Processing facility that we are part of we added a $200 million of data that processing that not only benefits state line, but certainly some of the the gas that we have in new Mexico as well.
Worked very hard on some of the water infrastructure made some great improvements on that some redundancy. There. So we feel really good about that really good work now we're really focused on some of the electrification. While we've made good progress I can tell you that's going to be a continued focus for us and for the industry.
Whether specifically around July.
Serious windstorm blew over a lot of power lines and as you can imagine it's not just getting those power lines back up it's not just getting our wells back up but it's all of the third party infrastructure, that's Daisy chain together and so that's where we saw some of the the real tightness.
Of that infrastructure not having alternative outlets that you typically would in a looser environment. So that continues to build out there's been some really material improvement, but just know that this is a very active basin certainly Devin is not the only company very active in the basin and so we'll continue to try to try our best to stay ahead, not just our own.
Own controllable activity, but working with our third party. So that they can stay ahead with us.
Got it and.
Just a quick one following up on the <unk>.
Do you have a.
A rough sense for the welcome.
Incorporating your budget for next year.
Yes, Paul.
The number now.
Yes about 400, yes, it's about 400 wells.
Relatively flat it looks like we are.
We kind of peak a little bit more towards the middle two quarters, but relatively flat during the year.
Okay, well I appreciate it thank you.
Sure.
Our next question comes from Neal Dingmann from Truest Neil Your line is now open. Please go ahead.
Good morning, guys. My first question guys just on the Permian infrastructure I'm, just wondering did that Rick and clay have highlighted and I think I put out there about the lack of infrastructure in recent quarters. I'm. Just wondering was some of that did that come as surprise or was it you were thinking that someone is going to be built out I'm. Just wondering if you could speak to.
Maybe what had changed and then maybe speak to the build out you're seeing now and what you anticipate next year.
Yes, I think you try and plan and stuff years in advance because many of these big projects are multiyear projects and sometimes that those projects slip that ultimately funding decisions or outside of your control. So some of those things can be typically.
Accounted for and baked in we're really focused on in 'twenty three is making sure that we're honoring our flaring percentages, we've done an amazing job of driving that down we're really thoughtful about these outlets and making sure that we have the ability to flow. These wells back and so we want to make sure that we're staying ahead.
Of any bumps and disruptions as you know.
New Mexico side, it's a lot more federal land youre relying a lot more on the BLM.
Even small things like right away, which are pretty standard course take a little bit longer these days and so during that transition. When we are accounting for that in our third party partners are accounting for that there can be a little bit of an extended drag I think we've gotten.
A lot of really good important progress during the course of 'twenty three that we will benefit from but we will continue to see constraints all the way around the Permian basin as this is a.
Materially growing basin, so incredibly prolific.
Yes, well said and then followed by second question is just on your comment of our high grading the upcoming multi zone Wolfcamp wells in New Mexico I'm, just wondering was it the infrastructure what was the limitations.
Not high grade this Delaware sooner and I'm, just wondering what kind of run rate.
I'll anticipate youll have in this core area.
Yes, I would say it was a combination of we did some assessment work are highlighted on the last call specifically the beef zone really understanding how does this work as we co developed how does this work independently what's the right business decision and that takes time to evaluate so that's some of the things that we did.
Dozens of other tests as well.
But some of the work that we invested in during the course of 'twenty three some of the things that we're learning obviously, we were applying to 'twenty four and then parallel to that was the infrastructure comments that that I. Just went through so I think theres a parallel as we think about what this concentration of activity means again I'll go back to the kind of two thirds one third of our.
<unk> is in the new Mexico side, So we're not overly leveraging new Mexico versus Texas now, we certainly high grading. We're always trying to drill are our best stuff first but.
But that's no different than.
What we're doing in other basins and obviously other operators are doing as well.
Thanks, Clay and look forward to the results.
Me too.
Our next question comes from Charles Meade from Johnson Rice.
Your line is now open. Please go ahead.
Good morning, Rick Clay, Jeff I wanted to take one we'll run it at.
Delaware Basin infrastructure.
Question as you were.
Taking your prepared remarks earlier Q&A I broke down.
There is electricity Buildout compression processing takeaway and then also you added water and so as you look at if those are the right categories as you look at those.
Could you tell us what your best guess for 'twenty four is going to be Europe.
Your top one or top two concerns.
Thinking about where you have work to do but more in the framing of whats.
Which of those is most likely to emerge as a bottleneck in 'twenty four.
Yeah, Charles it's a it's a bit of a lack of Moe kind of opportunity you bring on these big pads and you're really focused on gas takeaway, our gas compression or processing, but as you bring these wells on you're also testing water what we're seeing is with everyone.
Incredible electrical demand.
Some of the electricity providers are struggling to keep up with that growth.
We're moving forward with some things to take a little bit more self control on some of those projects and behind the meter opportunities to.
To control our own destiny, even a little bit more but I can tell you as soon as we get one.
Issue resolved, there's other issues that pop up and Thats just part of working in a very hot dynamic play now what I will.
I'll add to that and I think is very important we also Cds as not just constraints, but opportunities and we truly believe if we can identify them. Early then we have options. We can wire around the issue we can figure out how to work with third parties and develop and make sure that that is built in time for our needs.
We can certainly.
Choose to drill alternate wells reshuffle. The portfolio are number four we can lean in and be aggressive about capturing that value and leveraging that and you've seen us do that a number of times. So I think the most important thing is being opportunistic make sure. We're really thinking far out ahead, and making sure we're acting on that.
Yes, Charles this is Greg.
I'd like to go ahead I'd like to add yes, sorry, one thing I would like to add is we are really pleased with how the midstream providers are building out their capacity. So we think that somewhere in the next six to eight quarters youre going to see another two Bcf a day plus or minus in the Permian basin of processing. So when you step back.
And you look at the capital investment on the midstream you look at the at the long haul getting getting pipe.
Built in ground getting those.
You can have the gas to the Gulf Coast area, and they don't know Rhonda.
Louisiana, various like that for for the LNG facilities, we just think the.
The right amount of focus has been.
Placed on it and feel very confident future.
The other thing I would say I got a pretty good time to interject. This but we continue to see growth into Mexico.
It is a market that has grown from two Bcf a day.
Seven Bcf a day and there is no there is no basin more well suited for that I think Ben the Permian when you start looking at the western margins of the Permian basin, So whether youre on the Delaware side of the Midland side Youre going to benefit.
I think from that Mexican growth over the next decade or two.
Thank you for that collaboration cloud was going to say.
Came up consider using that term whack, a mole, but I came up with the term cycling bottlenecks and staff.
Youre more eloquent than all of your question.
Yes.
Feel free to use that one.
A follow up question, perhaps for Jeff Jeff.
I think you've clearly set the message that you guys are tilting towards buybacks.
Yeah.
Circumstances that you see but I was wondering if you could elaborate a bit more on the framework that you use that you guys have used to come to that conclusion and with an eye.
With an eye towards.
We do have that.
The happy evolution, where your stock price does go up at what point does it does it flip back towards the more towards a variable dividend.
Yes, I appreciate that Charles.
Your last comment is as important because thats why we want to maintain flexibility.
We believe the framework that we have today.
Allows for that as we kind of navigate the different market conditions, and whether that's specific to devin or on a more macro basis.
As it relates to how we evaluate the share repurchase I think I've talked about this in the past, but just like you all we.
We have our own internal models, obviously around intrinsic value, but we also watch closely how our peers are trading how we're trading relative to them and I think without question you've seen compression of our multiple over the last 12 months and so where we sit today it feels pretty clear to us given what we know and how we feel about the go forward business.
I thought you did a great job of articulating our game plan here over the next 12 months, we feel like it's the right time to jump in and be more aggressive on the share repo than we've been in the past and so you'll see us execute that over the coming quarters, and it's always a little bit challenging with the with the earnings blackouts that we have as it relates to the timing of how that <unk>.
As out.
We've got a game plan to go execute on that and be pretty consistent as we move forward over the next several quarters.
Yes, thanks for the detail.
Our next question comes from Matthew Portillo from Tpa Itch, Matthew Your line is now open. Please go ahead.
Good morning, all maybe starting out a question for Clay I was just curious if you could speak to some of the learnings from the Downspacing tests in the Eagle Ford maybe as it relates to the type curve performance on those tighter spaced wells and how many hotels in 2023 were impacted by these tasks.
Kind of the high grading plan heading into 2024 that might improve that capital efficiency.
Yes, thanks for the question, Matt I'd say.
It's all a very much a work in progress, but definitely the south Texas Eagle Ford area is a maturing basin similar to Williston, but very different in many ways. The rock is.
Incredibly forgiving in the sense of Downspacing re fracs.
We continue to find and uncover new ways to extract more and more of that oil in place.
So we're very encouraged with that now that said it doesn't always come out exactly as planned I would say it was less about the learnings around downspacing more a little bit about regional and so as we moved into specific areas. We found that one the recipe from what we call the Black Hawk area of kind of our legacy business is.
Exactly the same recipe as we should reply to our our Falcon the new assets and so some of those learnings certainly have accounted for the results in 2003, we have a little bit less activity. During this quarter. So you saw the oil production rollover second quarter third our caution and look back.
Make sure you look back at the first quarter, because we had about a 10% improvement or increase in production quarter over quarter from one to two and then down from two to three so thats more related activity less about individual well results, but as we continue to explore refracts downspacing.
Combination of how we do this co development I would say, we're very encouraged about what we're seeing there and this this rock continues to be the rock that keeps on giving.
Perfect and then as a follow up question, maybe for Rick here for Clay.
Like the shift here.
Further improvement on the capital efficiency in 2020 for I guess one.
One of the questions that continues to come up and Rick you highlighted in your prepared remarks that we're kind of in an uncertain time.
Capacity within OPEC and kind of the volatility in the crude markets as well as what might be.
2024 gas market.
Curious as you guys think through your capital allocation plans for 2004, where do you think stand at the moment.
Powder River basin in the Anadarko, just thinking through the return profile there versus areas like the Delaware and is there further optimization that can occur if we ended up in a bit of a lower commodity price environment.
Yes, really good question, Matt I think I will start the Anadarko there.
So we actually we're running four rigs we dropped a rig as you probably recall mid year.
<unk> partnership we have is going really well.
Even though the strip is supportive for for gas. The outlook. We think is really really good one of the things that we were faced with or we made the decision to do is just scale back capital just to just a little bit and going from four to three rigs, we think thats the right thing to do.
Obviously, the promote keeps those returns.
Pretty good spot. So that's how we're looking at that I think as we go into <unk>.
Going into 'twenty four we plan to keep a three rig program is our plan to open a powder.
Our original plan contemplated running running two rigs, possibly even considering a third rig up there just because some of the encouraging results, but the fact of the matter is is.
Is that we are still challenged somewhat on the on the well cost a little bit in it so much as a function of your activity level being somewhat.
Depressed quite honestly, they're slower than you need to drive those costs down we've made a decision to be just returns focused and make sure that we get that capital efficiency increase than.
That we referred to and the best way for Us to do that has dropped that back to.
One rig versus a planned two or three.
It's a it's a I think it's right thing to do short term that longer term, we know that you need to put additional capital in there. So we're working with service providers and we'd see some creative ways to do that but that's probably something we would need to contemplate more into 2025, but we are seeing some right. Some really really encouraging results. So.
Real pleased that asset at that point in time.
Thank you.
Our next question comes from Kevin Mccarthy from Pickering Energy Partners. Kevin Your line is now open.
Hey, good morning, guys and we appreciate all the details on <unk> or you've talked about oil production, taking a little bit before bounce back up to what looks like maybe close to current levels at year end 'twenty four and my question is given that Lumpiness do you see the 'twenty 'twenty four capex range is a good proxy for maintenance.
Capex and what that production level and the maintenance scenario would be kind of at the current production levels.
Yes, I've always struggled with the maintenance capital question, because theres always a way to kind of game. The system. If you just want to focus on oil or gas or whatever I would say this is a maintenance capital with a longer term mindset in mind, because we are still doing work to really prove up future value.
Doing things to always kind of enhance our portfolio at the same time maintenance capital of essentially roughly the same production 24, excuse me, 20% to 24, and then as we look out to 'twenty, five where at least that level, maybe a little bit a little bit of growth in 25 based on this investment so rough numbers I would call it.
Our maintenance capital, but a healthy maintenance capital.
Thanks, I think that clarity is helpful and as a follow up on the Eagle Ford.
Spending there has been a bit high this year, but my takeaway from your Capex budget is that it'll be a little bit more efficient in 2024 is that the right takeaway and I respect that you guys are still nailing down the details, but anything you can share a high level, what's driving maybe better efficiency in the Eagle Ford.
Yes, we are certainly still nailing things down and this is all preliminary based on the board's approval, but I think directionally you're right. We had looked at what is the constant two rigs for us to operate scenario look like what does a one rig for us to operate scenario look like and then of course, we're working with our JV partners Vps on.
The activity level for that side of the base and the Blackhawk side and so I think what we're working towards and we're finalizing it looks like a high graded activity consistent with what we've talked about in the other and the other basins and Youll see a real.
Really nice uptick in efficiency capital efficiency from that now still bear in mind I mean, we're doing some really in Venice things. There. We're looking forward on a lot of projects, we're not starving the asset of <unk>.
How do we create more value moving forward, that's very important to us that we're balancing the short term wins with also longer term value creation.
Thanks Clay.
Thank you Sir.
Our next question comes from Paul Cheng from Scotiabank.
Your line is now open.
Okay.
Thank you good morning, guys.
Two questions for you.
Okay Paul.
You guys have data over there.
And that unlocking.
Loss improvement so if I'm looking out for the next one or two years.
The area that you see the most opportunity for Youtube.
Cool.
The second question with all.
The pocket.
You can swap over there I think that's been corn.
None.
We wall accuracy in terms of.
Thank you.
Davidson.
And what that.
Given U S substantially reducing activity, while staying low or.
Longer term portfolio.
Thank you.
Hey, Paul it's Rick I'm going to start and then I'll.
Put it over to clay and Jeff, but I'm going to start with that second part I think one of the most.
Interesting things, we've learned with with Rimrock acquisition.
Some of which is it was a little bit of a surprise someone's dog and that was our spacing rimrock and Devon had had historically somewhat slightly different.
<unk> schemes, if you will.
And I think what we've learned is it really drove home the point that devins approach was probably the right approach as far as density per spacing unit, we were a little more relaxed in other words, we had wider spacing and I think thats, why we had better recoveries, but.
Some of those sometimes those those.
Those points arent really made until you have several years of production history, and I think thats, what we have learned with this.
The other thing I'd say is that.
Yes.
We also have seen the impacts of something.
Controllable like weather and last year.
Not to rehash too much or make excuses, but the fact of the matter is we had one of the worst weather.
Vince in that area in the last century.
So timing was not our friend that time, but do you just have to think.
I think through that as you execute implement your capital program. So I think those are the things we've learned as far as.
I can assure you the Williston has an absolute place.
Place in our portfolio going forward, it's an area. We've worked in a long time, we've got a great track record.
Up there over the last decade.
Going back to the WPS days.
And we see that continuing we still see.
Opportunities too.
To be better yet in the future. So we've learned we've learned quite a bit from this and we've applied that.
I can tell you I personally challenged the team to step up.
During that during that period sometimes.
That happens when you are a leader sometimes you push a little too hard and I think that's a learning for us as well so play what else you want to add to those questions.
I'll go back to.
What are we excited about when we look at.
The footprint that we have today as we think about innovation in that space.
Paul.
Last week I did a couple of days of intensive conversation did an off site with my team and we're really focused on what distinguishes us two years from now five years from now and most importantly, what are the actions that we can take to ensure that exceptional performance I think the two year conversations there was a lot about recovery.
Victor how do we intent how do we.
Intentionally go after more of that oil that we are already knows there we sit in five amazing basins have incredible land footprints already under our feet and how do we think about extracting just a little bit more.
From the resources that we have so a lot about stimulation design a lot about integrated approach thinking like geologists and reservoir engineers and completion engineers all at the same time and extracting that value really leaning in some of the great work that we found around <unk>. Some of the other things that we have and as we move towards five year really things start.
Coming into more focus around things like enhanced oil recovery, how are we progressing those learnings and again leveraging the amazing footprint that we already have today, how do we enhance that ballpark, 10% recovery to 12.
<unk> 15, 20% essentially doubling the resources that we have.
Specifically the learnings around the acquisitions.
A little bit more than a year ago, we're still a pretty fresh team I can tell you the acquisitions were fantastic.
Value, creating opportunities for us they fit the portfolio and what we've really learned is that we need to do a better job in the process of the hand off and how do we pick those opportunities up when these companies. The prior owners may have a little different mindset on how far ahead. They are on infrastructure.
On permitting on how they manage the day to day operations things like ESG or a very high important.
<unk> to us so moving through that kind of that transition period, I think we've gotten materially better from the first to the second and when the third one comes we will make another material improvements. So real pleased with the team the work that David's team the greater team does and that evaluation. We are in every data room will look hard at everything.
We keep an exceptionally high bar and we will continue to get very much better on that hand off and really improving the ultimate value from these opportunities.
Thank you.
Our next question comes from Scott Hanold from RBC Scott. Your line is now open. Please go ahead.
Yes. Thanks.
Just one for Jeff just to be a little bit more pointed on the kind of the buyback kind of theme.
Your stock is down circa 30% year to date, certainly underperforming the pure grew by quite a bit like why not do buybacks in the third quarter. I know you are obviously the stock is.
Down here in the last week or so but had points during the third quarter to where it was at similar levels, just kind of curious why not <unk> and more so going forward.
Yes, Scott you bet that the answer for the third quarter is real real simple as Youll recall at the end of the second quarter, we disclosed our cash balance at dip below 500 million as you might recall when we rolled out our framework three years ago. One of the key criteria was that we maintain a cash balance in excess of that $500 million level. So.
Our first priority was to take care of the maturity that we had in the third quarter second priority was to build back our cash balance above that $500 million level, which as you saw in our reported results here in the third quarter. We've done that so that married with our commitment to deliver on the variable dividend that we talked about in the previous quarter, we werent in a position.
<unk> to buy any.
Mental shares.
In the quarter, but going forward, we've I think we've hopefully clearly telegraph today.
Our intention on the share repo as well as the potential impact of the variable dividend going forward and so we look forward to getting to our next call in February and kind of talking about the result.
Okay got it and then.
My follow up is when you look at oil production next year around 315000, do you see that as your new baseline.
I think the prior kind of I guess market expectation would be closer to $3 20 and so.
$3 15, the new baseline and was that driven more about like where you think it's best sustainable at or is it more reflecting of your view of the uncertainty in the macro and just wanting to kind of tapered a little bit.
Yes, we think that's the new baseline.
Fact is we.
Not too dissimilar from what the consensus was is that $3 20 was was probably certainly doable, we have done it two or three quarters in a row, but the reality is as we continued to see.
Some constraints some weather issues in real world impacts, we think that $3 15 is absolutely the right baseline for us.
I appreciate it thank you.
Yeah.
Well I appreciate everyone's interest in Devon to ASC that we're at the top of our time slot. If you have any further questions. Please don't hesitate to reach out to the Investor relations team at any time.
Once again, thank you for your interest and have a good day.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines. Thank.
Thank you.
Okay.
Yes.
Yes.
Yeah.
Yeah.
Yeah.