Q4 2024 Devon Energy Corp Earnings Call
Welcome to Devon Energy's fourth quarter 2024 conference call. At this time all participants are in listen-only mode. This call is being recorded. I'd now like to turn the call over to Mrs. Rosy Zuklic, Vice President of Investor Relations. You may begin.
Speaker Change: Thank you Rosie appreciate everyone, taking the time to join US This morning.
Speaker Change: I'm very proud to report that.
Speaker Change: Devin ended 2024 with exceptionally strong results.
Speaker Change: Let's start with slide two.
Speaker Change: We had outstanding operational performance, which underpin the robust financial outcomes.
Speaker Change: Significant free cash flow generation.
Speaker Change: This success is a testament.
Speaker Change: So the dedication and hard work of our entire team.
Speaker Change: We produced record volumes delivered 154% proved replacement reserve replacement ratio and made nice strides on continuing our resource assessment of our existing assets.
Speaker Change: We generated $3 billion of free cash flow.
Speaker Change: Which we returned $2 billion of that door shareholders.
Speaker Change: Insistent with our strategic priority of delivering value to shareholders through a sustainable annually growing fixed dividend.
Speaker Change: This month, our board approved an increase to 24 cents per share this.
Speaker Change: This represents a 9% improvement over the 2024 right.
Speaker Change: And to fortify our managed.
Speaker Change: Portfolio, even more we executed the Williston basin acquisition this past year and it is performing quite nicely throughout the year, we've maintained financial strength with ample liquidity low leverage we are well positioned for the future.
Speaker Change: You'll hear more from a details from clay and Jeff in a few moments.
Speaker Change: For me, it's been an honor to lead this company for the past four years, serving our shareholders our board of directors and our dedicated employees.
Speaker Change: Together, we built a very strong company with a solid foundation for future future success.
Speaker Change: Thank everyone for their trust and support look forward to watching the company has continued achievements under clays capable leadership and have complete confidence in him and his management team.
Speaker Change: Look forward to the many organic catalyst they will continue to create by remaining true to devins values and remaining focused on our strategic priorities and with that.
Speaker Change: I'll now turn it over to clay.
Clay: Thank you Rick I'll always appreciate your guidance mentor ship and insight and I'm truly grateful for your confidence.
Clay: Good morning, everyone, let's start on slide three where I can cover the outstanding fourth quarter results.
Clay: For the fifth quarter in a row, we have again beaten consensus and delivered outsized returns to our shareholders.
Clay: Fourth quarter oil production reached an all time high of 398000 barrels per day fourth quarter production outperformance was largely driven by the timing and productivity of our Eagle Ford Wells.
Clay: Major contributor was from the acquired Grayson mill assets, confirming how well that integration is going.
Clay: The newly combined Rockies team is doing a fantastic job of learning from each other and creating additional value.
From a capital perspective, we also had an outstanding quarter. This performance was primarily driven by the good work of the Delaware team. In addition, lower workover costs combined with higher volumes drove our per unit expenses significantly lower boosting our margins and free cash flow generation.
Clay: Thanks to our strong operating performance, we generated $738 million and free cash flow of which we returned $444 million to shareholders via our fixed dividend and share repurchase program.
Clay: We strongly believe that Devin presents a compelling investment opportunity and thus we leaned into our share repurchase program this quarter by buying $300 million of Devon stock.
Clay: Additionally, we strengthened our financial position by building cash this quarter to about $850 million up 25% from last quarter.
Clay: Now, let's turn to slide four and talk about some of the exciting news related to the Eagle Ford.
Clay: On January 31st Devin and BP Exxon in agreement to dissolve our partnership and the Blackhawk field.
Clay: We expect to close on April one at which time, we will hold approximately 46000 black Hawk net acres with greater than 95% working interest in these assets primarily in Dewitt County.
Clay: This will be a high quality high working interest fully controlled and concentrated position.
Clay: After close we will have approximately 700 unveiled locations remaining in the Eagle Ford 550 of which will be in the black Hawk field.
Clay: This is nearly a decade of drilling inventory at the current pace.
Clay: A key value driver for us to dissolve this JV was that we are confident that we can save more than $2 million in D&C cost per well with improved well design supply chain and application of operational technology from our other basins the.
Clay: The combination of this cost reduction and control of the go forward development.
Clay: Significantly enhances returns and provides a material uplift to the NPV of our position now.
Clay: Now, let's turn to slide five and talk about the updated and improved 2025 outlook.
Clay: Moving forward, we remain committed to creating value to our shareholders with disciplined investment in growth per share basis.
Clay: You should also note that we're bumping our 2025 production and reducing our capital from the soft guide that we provided on the last call.
Clay: We now expect to deliver 815000 Boe per day, including 800, excuse me 383000 barrels of oil per day.
Clay: For capital, we expect to invest $3 $9 billion or $200 million lower than the soft guidance, we provided back in November.
Clay: We expect these improvements to drive more than 300 million and additional free cash flow this year.
Clay: As displayed on the right side of the slide these numbers add up to a very impressive capital efficiency as compared to our peers of this highly competitive industry.
Clay: Turning to slide six let's discuss the 2025 outlook from an asset perspective.
Clay: The Delaware Basin will account for greater than 50% of our total investment for the year. We expect another year of strong performance and plan to operate 14 rigs and three completion crews, while bringing online about 265 gross wells.
Clay: As we've touched on in the past, we're leaning into a higher allocation of multi zone projects as compared to historical levels, allowing us to balance rate of return NPV and inventory.
Clay: Just on the success of 2024, we see tremendous benefits from the multi zone developments by minimizing depletion effects between depleted dependent zones feathering in derisk secondary targets and results that yield a more robust and sustainable inventory over time.
Clay: An area that I've been extremely impressed with is our ability to continue to find ways to accelerate our operational efficiencies in 2024, we saw about 15% improvement.
Clay: And both our feet drilled and completed feet per day metrics.
Clay: This operational efficiency drives higher well returns and free cash flow generation.
Clay: Our 2025 I expect this momentum to continue and I'm excited to see additional value creation from this work.
Clay: Drifting to the Rockies, we possess a unique combination of assets that can provide growth and free cash flow.
Clay: Proximately three fourths of the Rockies capital spend will be directed towards the Williston basin.
Clay: With the impressive results to date strong progress on the integration and a long inventory runway most of the capital will be focused on the western part of the Williston Basin. We believe that this three rig program balances flat production impressive returns and an impressive inventory life.
Clay: Since taking over the Grace and mill asset.
Clay: The organization has identified many opportunities to further enhance our investment.
Clay: And just a few months since closing we have already identified $50 million in capital and expense savings for the year fully capturing our announced synergy target.
Clay: We're not done and expect additional savings in operating expenses as well as capital savings.
Clay: The early wins of $600000 in savings per well on D&C cost tie back to the drilling and completion pace supply chain wins, and leveraging operational improvements such as self sourcing sand and simultaneously.
Clay: In the Anadarko basin. The past few years have benefited from the Dow JV, which was set to in mid 2025 with the success of this partnership we have agreed to extend the JV for another 49 drilling locations for $40 million in drilling carry.
Clay: Activity for the new agreement is planned to start in the second quarter of this year.
Clay: Turning to slide seven and before I hand, the call off to Jeff I want to address a common question that I've been asked since the leadership change was announced and that is what will be different for Devin going forward.
Clay: I had to capture that transition in two words, it would be continuity and opportunity.
Speaker Change: As many of you know Rick and I have worked together for over 10 years and come from a similar background together, we build a strong foundation for Devin and we're both excited about the next chapter for this great company.
Speaker Change: Under continuity I see continuing to focus on the following <unk>.
Speaker Change: First Devon strategic priorities and values will continue to be central for.
Speaker Change: For the company.
Speaker Change: Yeah.
Speaker Change: Operating excellence will remain foundational in order to succeed in this industry, we must deliver on the fundamental aspects of how we convert resource to value.
Speaker Change: And third we remain committed to delivering value to our shareholders and maintaining a fortress balance sheet, we will continue to deliver sustainable growing fixed dividend as well as executing on our share repurchase program as.
Speaker Change: As far as the opportunity I see several needle moving prospects first we will focus inward to further improve our capital efficiency and margin expansion.
Speaker Change: We will enhance our base production and organically expand our deep inventory third.
Speaker Change: We will further embrace our value, creating technology across the company and promote innovative thinking from our outstanding employees.
Speaker Change: We are already working on several value focused opportunities and you'll hear more about this in the coming quarters.
Jeff: With that I'll now hand, the call over to Jeff.
Jeff: Thanks Clay.
Jeff: Moving now to slide eight to talk about our gas portfolio with upward momentum in natural gas pricing, we see significant upside from our natural gas resource and wanted to highlight the value potential of our diverse portfolio.
Jeff: Although today, our capital is largely allocated to oil projects driven by returns the associated gas production and untapped natural gas resource underlying our acreage position provides a significant upside opportunity.
Jeff: As highlighted on the slide we produce more than one 3 billion cubic feet per day of natural gas and with the move higher in pricing, our natural gas revenue will more than double year over year.
With the majority of gas production residing in the Delaware, Our marketing team has done an exceptional job of diversifying our exposure to maximize value.
Jeff: Through a variety of arrangements a large portion of our Delaware gas has access to Gulf coast markets and pricing driven by growing into it.
Jeff: Growing industrial and LNG demand.
Jeff: For the remaining Delaware production exposed to in basin pricing, we've utilized regional basis swaps.
Jeff: Protection this strategy helps us mitigate risk and stabilize our revenue streams.
Jeff: In the Anadarko Basin are gas has access to south eastern markets, which have recently traded at a premium to Henry hub prices as more and more companies point their molecules to the Gulf Coast.
Jeff: We expect increased demand for our gas in the southeast as the need for power moves higher in this growing region of the country.
Jeff: And we're always looking for new demand outlets for natural gas volumes, we have.
Jeff: Have an experienced and innovative marketing team that are actively assessing LNG power producer and datacenter supply opportunities. We look forward to sharing specifics on these opportunities as they develop and firm up over the coming year.
Jeff: To summarize while our primary focus remains on oil or gas portfolio offer significant optionality and value, our marketing and risk management efforts ensure that we're well positioned to capitalize on growing demand and favorable market conditions.
Jeff: Turning to slide nine as Clay said earlier, there's no change on our commitment to delivering value to shareholders, while maintaining our financial strength for.
Jeff: For 2025, we're targeting up to 70% cash return payout for shareholders from generated free cash flow at current strip pricing.
Jeff: Our cash returns will be delivered via our growing fixed dividend and share repurchases.
Jeff: Effective in the first quarter the quarterly dividend is increasing to 24, and we expect the cadence of about $200 million to $300 million a quarter for share repurchases throughout the year the.
The balance of our free cash flow will accrue to the balance sheet for further debt paydown as we aim to drive our net debt to EBITDA ratio below one times and build upon our investment grade financial strength.
Rosie: I'll now turn the call back to Rosie for Q&A.
Rosie: We ask that everyone limit yourself to one question and one follow up so Emily we are ready to take our first question.
Rosie: Thank you if you would like to ask a question today you can do so by pressing star followed by the number one on your telephone keypad.
Speaker Change: Last question comes from Scott Hanold with RBC.
Speaker Change: Please go ahead. Your line is now open.
Scott Hanold: Yeah, Thanks, Hey, guys strong quarter end.
Rick: Rick Congrats on the retirement and play on the promotion.
Scott Hanold: Maybe I'm going to start with the <unk>.
Scott Hanold: Some mills it seems like there's some been some strong outperformance here over the last couple of quarters and it seems like you've got a lot of focus on that asset here in 2025 could you remind us the <unk>.
Scott Hanold: Inventory duration, you see within the Grace, the mill's acid and sort of.
Scott Hanold: How that compares with your sort of legacy Bakken.
Speaker Change: Yes, Scott Thanks for the kind words.
Scott Hanold: It's a great time for for Devin and I know, Rick and I are fully aligned on the.
Speaker Change: The best times are still yet ahead.
Speaker Change: Specifically Grace and I think this was an important.
Speaker Change: Acquisition for Devon to just absolutely stick you know when I think back on our portfolio pre Grayson, we had a hole in the portfolio. We were not shy about admitting that we have a great Williston team really excited about that.
Speaker Change: The brand that we had built within that basin and what it could allow us to do but objectively we were just short on inventory.
Speaker Change: And really filled that inventory and secondarily, we needed to absolutely nailed the execution and so we've done that we've seen costs come down and we've seen that productivity stay up what we've guided the street towards is we're not going to run at the same pace of the <unk>.
Speaker Change: Previous Grayson team.
Speaker Change: So, we'll see that productivity or excuse me the production and the absolute rate come down a little bit over time, what we've seen from both the cost side and the productivity side as that base decline has flattened out. These productivity of these wells have continued to improve and now what we're saying is this runway run rate that we're experiencing.
Speaker Change: Today, as we think much more sustainable at the level, we're at and that runway continues to expand there is more organic things to do trades zero cost opportunities to further expand that runway, but we're approaching close to a decade of opportunity in the Williston basin now.
Speaker Change: <unk> <unk>. So we're really excited about where that physician fits in our portfolio.
Speaker Change: I appreciate that and as my follow up question, it's going to be on the.
Speaker Change: The Eagle Ford.
Speaker Change: It was split with bps could you could you give us a little bit of color on some of the background.
Speaker Change: Regarding that.
Speaker Change: Do you all think about splitting the assets and did you guys.
Speaker Change: I guess look for more inventory versus PDP.
Can you just tell us how that allocation back and forth one.
Speaker Change: Yes, it's interesting I mean, I think this is a classic win win opportunity.
Speaker Change: When I summarize it and we displayed a map when you think about the assets that <unk> is going to inherit in the assets that we inherit.
Speaker Change: Objectively they valued more of those assets than we do and we are valued more of the assets that we're going to inherit and so there was a natural accretion associated mutual accretion associated with this deal I think above and beyond that I think about our ability to control pace to really direct.
Speaker Change: The operations and then as I pointed out in the prepared remarks, we see material operational improvement and we've already display that we've got since we've taken over the rig we have one well down we have another well exactly on pace, where we thought it should be and that yields more than $2 million per well and value creation.
Speaker Change: Straight from the top on all of the remaining opportunities ahead, which obviously is a massive needle mover.
Speaker Change: Thank you.
Speaker Change: The next question comes from Neal Dingmann with chest Mayo. Please go ahead.
Speaker Change: Okay.
Speaker Change: Thank you guys.
Speaker Change: Again, Rick just congrats on a stellar clearer and clearer and I play look forward to continued Deb. If you run the ship guys. My first question really just a little bit what's asked earlier on the Bakken and I guess, what you're calling the Rockies now specifically club noticed appropriately you've stepped up the capex a little bit I think you're saying around $1 billion.
Speaker Change: Four rigs and I'm just wondering given your planned focus here on Grace had mills and I think the continued operational efficiencies.
Speaker Change: Do you anticipate potentially seeing more growth here later in the year or is the plan just to kind of keep things stable.
Speaker Change: Ideally would you like to see here.
Speaker Change: Yes.
Speaker Change: Good point on the Rockies versus the Williston and powder, we've combined those we think it simplifies the story.
Speaker Change: It really is interesting asset so we've got the legacy Williston position, we have the grace in Williston position and then we have the legacy powder position and so really when we think about.
Speaker Change: Overall, Williston excuse me, let's start with Grace and when you think about grace and its pretty good going to be pretty flat to where its at now we're going to run three rigs there we see efficiencies we were talking about.
Speaker Change: Not just in the capital cost, but the timing associated with that that certainly helps productivity yield really nice capital efficiency, when we flip down to the powder and we started looking at that asset that was an interesting one I think that was it.
Speaker Change: Again, having more support of not needing that asset today allows that team to do a little bit more of a science work to really unlock that potential and I think it is a tremendous part of our value.
Speaker Change: As we think forward and where it fits in the portfolio in coming years.
Speaker Change: No.
Speaker Change: Look forward to seeing what youre going to do there and then secondly, just on the Delaware operations typically.
Speaker Change: You all continue to I think it's demonstrated how efficient program continues to be there I'm just wondering.
Speaker Change: It's noticeable is versus maybe some others is that your midstream infrastructure situation appears to continue to be very strong with no takeaway issues I'm just wondering.
Speaker Change: Is this performance largely due to contract is it I know you've got some good surface acreage that you've taken care of in the past what is.
Speaker Change: Again, <unk> been able to.
Speaker Change: Efficiently drive business.
Speaker Change: Premier takeaway.
Speaker Change: Hey, Neil this is Jeff, yes, you're exactly right. We've done a lot of work over the last couple of years, our marketing team and the business unit collectively together working with our third party providers on making sure that we've got the gathering we've got the processing capacity that we need and then ultimately the takeaway as it relates to both the gas Ngls and oil.
Speaker Change: So that's been a really big team effort over the last couple of years you go back two or three years ago. There were certainly some more challenges in the basin today, we feel really good about the position that we're in and really don't see any roadblocks on that front. So feel really good about our ability to move the gas I should mention as well water is not a is not a light ish.
Speaker Change: Are you that that the team is absolutely focused on as well and so combined they've done a really great job to make sure that we've got the takeaway that we need for all those products.
Speaker Change: And are excited about the.
Speaker Change: The pricing improvement that we've seen just over the last six months in that basin.
Speaker Change: Again, congrats guys great quarter.
Speaker Change: Thanks Neil.
Speaker Change: The next question comes from Neil Mehta with Goldman Sachs.
Speaker Change: Please go ahead.
Yeah.
Speaker Change: Yeah, Good morning, Tim and Rick Congrats on an amazing 45 year career in clay congratulations to you and.
Speaker Change: Clay, maybe that's a good place to kick off a couple of times in the prepared remarks, he talked about the organic opportunity set are we.
Speaker Change: Reading into it too.
Speaker Change: Your early strategies he stepped into the CEO role to really pursue more of an organic versus an M&A focus strategy and that the.
Speaker Change: The optimal thing to be buying back here as your own stock versus incremental assets.
Speaker Change: Yes, thanks for the comments again, and I think you're reading that right I, just see real tremendous value creation kind of underfoot the portfolio we have today.
Speaker Change: And that can come in many different forums, I mean small land trades that will never make the earnings presentations to more material things like we just announced with <unk>.
Speaker Change: Those are real massive value creation opportunities that are typically no cash out the door.
Speaker Change: In addition to that we think about the technology application.
Flattening the base decline on our business as a massive opportunity and I can tell you. The teams that are working on things like artificial lift and really applying kind of real time diagnostics of those opportunities is again hard to put an describe on a slide.
But have the biggest value creation opportunities as we think about.
Speaker Change: The coming decade and beyond for the organization. So really excited about that objectively look we're always going to stay close we believe in consolidation if theres a right opportunity for us will remain open to that but I think our primary focus is just making devin a heck of a lot better Devin.
Speaker Change: Okay. That's very clear and then just a follow up on on slide floor. Aside for Intuit particular in Eagle Ford can you just talk about.
Speaker Change: Why do you think ultimately the partnership.
Speaker Change: This solution makes sense, how we should think about the uplift.
Speaker Change: In value and where does where does it ultimately come from is it from volumes that said from a capital efficiency.
Speaker Change: And.
Speaker Change: Or is it about how you ultimately prosecute this acreage.
Speaker Change: I would have to say first on the list as we run the waterfall and think about the value creation for US there is no doubt about it saving $2 million plus.
Speaker Change: Per well off the top is roughly about $2 million of NPV for every single well.
Speaker Change: They're so it's that's a real opportunity for us and certainly is the headline.
Speaker Change: Approach for us, but controlling the pace is really valuable as we think about how quick.
Speaker Change: These these wells, we drill these wells and seven days and so being able to control that when we need to being able to back off when we have the opportunity to I know.
Speaker Change: <unk> re fracs aren't the hottest topic does your but I can tell you there is real material value and as we see more and more value creation from this.
Speaker Change: We call his magic rock.
Speaker Change: <unk> to yield more and more opportunities and that's what we're really excited about but again I'll reiterate I think this is a mutual win win sometimes you're bringing together these joint ventures and you see the opportunities there by the same token opportunities can change evaluations can change technology can change.
Speaker Change: <unk> can change and it can be time to dissolution I mean, a similar analogy as selling midstream assets and buying midstream assets back in both can be right at the given time I would say when I think about the <unk> opportunity. This is the right move for them now and this is the right move for us now.
Speaker Change: That's correct.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: The next question comes from Arun Jairam with J P. Morgan.
Speaker Change: Please go ahead.
Arun Jairam: Good morning, gentlemen.
Speaker Change: I was wondering if you could maybe highlight yes good morning.
Arun Jairam: See if you could highlight.
Arun Jairam:
Arun Jairam: The strong sequential performance in the Eagle Ford I think your volumes were up over 20% sequentially.
Arun Jairam: The well count didn't seem like that was the driver. So maybe just help us understand.
Arun Jairam: Kind of what drove that and thoughts on kind of sustaining that above 90.
Arun Jairam: Bo per day kind of figures, we think about 2025, because it was the key driver I think of the beat as you highlighted.
Ryan: Yes, Ryan Thanks for the question I want to commend the team on the incredibly value, creating work around D&C efficiency.
Ryan: Where some of this starts and the compounding effect of just shaving off time on the drilling side on the completion side, we highlighted that in 2024, we've certainly seen some of those benefits there I think as we move into the drivers seat on those operational efficiencies I think it will take.
Ryan: A different pace and really add a whole different level of opportunity.
Ryan: Also from the production side again these wells, we continue to see incremental value.
Ryan: Creation, even as we space these wells and what looks like fully developed psus. We can subsequently bring additional wells in stimulate these in and this rock continues to produce and continue to give back to us.
Ryan: One thing I want to caution you on is we did bring on.
A significant amount of wells in the fourth quarter early in the quarter and so theres a little bit of tailwind on that that's probably not fully we're able to replicate every quarter going forward. So I would caution you a little bit on extrapolating the fourth quarter run rate run rate, but certainly the operational momentum the savvy the hard work.
<unk> that the team is doing I feel like we're about to grab another year on so hang on.
Ryan: Great great.
Speaker Change: Maybe a follow ups for Jeff, Jeff If we do the math around.
Ryan: Call It 250 million of buybacks per quarter, maybe up to 300.
Ryan: Based on your $3 billion free cash flow number that you put the deck that would imply returning somewhere between 53% to 60% of your free cash flow.
Speaker Change: Understanding that you use buybacks maybe to be opportunistically, but is it the intention to maybe.
Ryan: Turn a little bit or to focus a little bit on the balance sheet versus cash return in 2025, just gone through the math around that.
Speaker Change: Yes, I appreciate the question Arun actually it's one of the things we were talking a lot about with the with the internal focus that clay described this morning.
Speaker Change: Really that's all a function of us driving our breakeven is lower and so what we're really excited about is obviously that makes it that much easier for us to sustain and grow our fixed dividend and it also allows us to reevaluate that share repurchase range that we've laid out the $200 million to $300 million. So as we work our way through the year.
Speaker Change: As I just mentioned, we catch another gear and we start to see these efficiencies continue to build into our numbers I think that will will likely reevaluate that range and youll make you absolutely see the potential for that to move higher as we work our way through the year now that being said, we do have a $2 $5 billion debt reduction target that we've laid out there last year.
Speaker Change: We've already hit $500 million of that.
Speaker Change: Last quarter with the maturities that came due in 'twenty four and we'll have another $500 million. This year of maturities and then we've got our $1 billion term loan coming due next year and so we will have ample opportunities to pay down debt and we agree with you with the with the cash flow the free cash flow projection that we're looking at today the efficiency.
Speaker Change: These that we're seeing work their way into the numbers. We think there is upside on our ability on the cash returns to shareholders specifically on the share repurchases.
Speaker Change: Rick I wanted to wish you the best as you approach retirement I've enjoyed all the war stories with you over the years and hearing about how the industry has evolved.
Speaker Change: And it's also great to see you.
Speaker Change: In the CEO seat and a member of our time together as we used to follow Anadarko, but best wishes to both of you.
Speaker Change: Arun. Thank you very much and those are kind comments.
Speaker Change: So best wishes to you in the future as well body.
Speaker Change: Okay.
Paul Cheng: The next question comes from Paul Cheng with Scotiabank. Please go ahead.
Paul Cheng: Hi, good morning.
Speaker Change: Good morning.
Paul Cheng: Just.
Speaker Change: Trying to understand that when you dissolve the JV with BP.
Paul Cheng: Saying that you're going to save the cost by about $2 million per well.
Paul Cheng: And from a design standpoint, I mean, as a JV partner and is there any.
Paul Cheng: Maybe bolt on that Paul hurdle with that too.
Paul Cheng: It's allowed you to achieve those savings so.
Paul Cheng: All in all I'm trying to understand exactly how that why just dissolving it all of a sudden that we would be able to seeing that 2 million saving.
Paul Cheng: The second question is on the table.
Paul Cheng: Well.
Speaker Change: I think last year that you did about 230 wells and then before that by 200, I think it'd be less than 241, so you're now doing 250 to $2 70.
Speaker Change: One would think that as we saw your production for 2025, maybe its going to be higher than what we suggest.
Speaker Change: The guidance is it the I mean can you tell us about the cadence on on the well coming on stream do you say the weighting more towards the end of the year. That's why we're not seeing the full benefit this year or that because he is the multi so and then you are.
Speaker Change: Looking at a lot of those secondary benches. So as you saw with that production on those well.
Speaker Change: Maybe somewhat lower even though with the return yes. Good. Thank you.
Paul: Hey, Thanks, Paul let.
Paul Cheng: Let me start with the first question the bps D&C JV.
Paul Cheng: This JV was pretty unique <unk> handled the drilling and the completions and then Devin handled the facility's design and the production. So there was a pretty good split now we certainly tried to work with each others, we had different views on.
Paul Cheng: On how to approach casing design, well design Frac design lots of different things and sometimes we're able to come together and sometimes we werent. The advantage that we have and the reason I'm. So confident in these numbers is after the value of this deal that gave us a real opportunity.
Paul Cheng: Do our own D&C run our own rigs and really compare side by side and sometimes we're seeing opportunities next door side by side.
Paul Cheng: Dsos and so.
Paul Cheng: So we've been able to extrapolate that understand what it means to us and this was a significant motivation for us as I said, we've already got our hands on the wheel.
Paul Cheng: Seeing those that.
Paul Cheng: That improvement come through and we feel very very confident in being able to achieve what I said was greater than $2 million. In addition to that the amount of control that will have the our ability to dial up dial down activity as we need to I think is a huge value creator as well so.
Paul Cheng: Really excited about that and again, we're really really pleased this has been a long conversation that we've had and finally the stars are aligned where both sides could feel really good about doing. This your second question was to the Delaware and I think the heart of the question is really.
Paul Cheng: It seems like productivity on a per gross well basis is down and what I want to caution here is it's a little bit of a difference in working interest. So last year on average 2024, we were about 80% working interest on average 25, it's about 73% don't see this as a trend don't extrapolate those numbers.
Paul Cheng: That's just the way the wells kind of fell to us.
Paul Cheng: We've got a smattering of different working interest in the area and it actually kind of alternates eighties, and seventies, even down to $60 or high <unk> in one quarter, but thats just the way these big pads come in and they can really influence.
Paul Cheng: The overall average for that.
Paul Cheng: That quarter. So anyway, just wanted to make sure you're aware that it's not a productivity issue as we think about the incredible productivity. We displayed in 2024, we think 2025 is going to be like for like Wolfcamp A's Wolfcamp A's cotton draw the cotton draw equally productive now we did caution in the prepared remarks that we have a.
Paul Cheng: Lately different well mix, we're digging in deeper into some of the Wolfcamp B zones. We truly believe is the right value creation strategy for the organization and for the shareholders, which does provide a different mix, sometimes thats been working interest sometimes thats in GOR, but all of that's baked into our guidance. So thank you very much for the question Paul.
Thank you.
Speaker Change: The next question comes from Doug Leggate with Wolfe Research. Please go ahead.
Speaker Change: Doug Your line is now open. Please proceed with your question.
Speaker Change: Well, that's the easiest question I've ever had from Doug Leggate. So we can move on to the next.
Speaker Change: Moving on to our next question comes from Roger read with Wells Fargo. Roger. Please go ahead.
Speaker Change: Oh, well Doug's last my game.
Good morning, everyone.
Speaker Change: Yeah.
Speaker Change: Good morning.
Speaker Change: Anyway.
Speaker Change: Quick congrats Rick and clay and we look forward to working with you going forward. So are these transitions.
Speaker Change: But be entertaining nonetheless.
Speaker Change: I just really wanted to follow up on kind of one key question. The Eagle Ford you mentioned the re Fracs, maybe not the most.
Speaker Change: Interesting or exciting, but we're hearing more and more about it where do you think you are in terms of.
Speaker Change: Working on some of the re fracs.
Speaker Change: Think about that from a.
Speaker Change: Returns then impact basis relative to.
Speaker Change: Just say baseline operations.
Speaker Change: Yes, Roger let me be clear we are very pro re frac I think the market is just doesn't have a whole lot of excitement around it so.
Speaker Change: That's fine we don't need to talk about it a whole lot, but know that we've got a huge inventory of opportunities ahead, and we have done a tremendous amount of work in that space more than 40 in the Eagle Ford more than 40% in Williston and really have a good understanding of what works, what's the right recipe and how it fits in the interesting thing with this with us.
Speaker Change: Dissolution of our joint venture as those re Fracs has actually moved down in our priority list, because the well productivity and the well value creation has moved significantly up so youll, probably see a little bit slower cadence of re fracs, but know that we're just as confident as we were we see tremendous value creation from.
Speaker Change: Those and remaining upside, which again this kind of falls into that organic value creation.
Speaker Change: Extracting more from the resources that we already have under foot is the name of the game and the beauty of those re fracs just to tap that just a little bit is the full cycle cost and economics of those re fracs is exactly the half cycle cost because the primary wells already.
Speaker Change: <unk> written the entry cost of that land, so when you're really thinking about it on a full cycle like for like basis. These refracts are tremendously valuable and I think there is more to come on thinking about how we do artificial lift strategy. How do we apply technology to continue to think about that flattened those base declines improved those recovery fab.
Speaker Change: <unk>.
Speaker Change: Still overall.
Speaker Change: 10% plus or minus recovery factor on these resource plays that theres tremendous value creation from the incredible position that we have no accident, where in these five particular basins very prolific lots of zones are Poland downhole from where we sit.
Speaker Change: By the way lots of oil remaining in the zones that were already producing for them. So really excited about that and you'll hear more about that coming quarters.
Speaker Change: I appreciate that.
Speaker Change: Quick follow up.
Speaker Change: Trump tariffs impacts on some of the materials that are used in wells how is that reflected in your capex guidance or is there a plus minus we should be paying attention to there.
Speaker Change: Yes, Roger that obviously, there's been a lot flying around on tariffs.
Speaker Change: Your guess is as good as mine as to [laughter].
Speaker Change: When there is a land and what will be the go forward game plan, but we have done some work with our supply chain team to try to understand what that could look like what the impact would be frankly, as we've done the rough math, which I would I would describe as pretty aggressive kind of assuming that the tariffs were in place today. All the tariffs that have been talked about are in <unk>.
Speaker Change: Today and carried forward into the future we view it as less than a 2% impact on our overall capital program for the year. So we really don't see it as a big impact at this point in time and now that being said, we'll watch with everybody else in the news and see what ultimately gets printed but we feel pretty good that it's going to have a minor impact on us at this point.
Speaker Change: Yeah, well given the uncertainty you can understand why I'd ask you. The question instead of coming up with an answer.
Speaker Change: Thanks, guys, yes, we appreciate that thanks.
Speaker Change: The next question comes from Kevin Mccarthy with Pickering Energy Partners. Kevin. Please go ahead.
Kevin Mccarthy: Okay first I wanted to say to Rick that we'll Miss you on these calls and I personally I appreciate all the answers you've given me over the years at Devon and WPS before that.
Speaker Change: Thanks, Kevin.
Speaker Change: Joy for me.
Speaker Change: I wanted to ask.
Okay.
Speaker Change: Only one question from me I wanted to ask what changed on your 2025 capital plan over the last several months that you were able to lower your guidance was it mostly just a reduction in Permian and Eagle Ford well costs or any specifics you can give us on basin details would help.
Kevin Mccarthy: Yes. Thanks for that question, Kevin I mean, theres a lot of things that we're always pushing the teams were encouraging.
Speaker Change: Making sure that we capture those realized gains.
Speaker Change: We provide a soft guide in November and then continue to hone that there's a few things that we felt very confident in at this point that we weren't as confident in capturing back in November and top of that list is certainly the gains in the Williston.
Speaker Change: $600000 per wells, a material improvement that we didn't have fully grasp the time in the last call and then second is this bps dissolution certainly that is a that's a.
Speaker Change: Huge needle mover for us now across the board.
As I mentioned in the prepared remarks, the operational efficiencies that we gained in 2024, we expect continued tailwind momentum on that.
Speaker Change: But we have not baked in any additional deflation or contract terms that we don't already have in place today basically the from an inflationary or deflationary standpoint, we assume a little bit of essentially status quo and we are.
Speaker Change: Pretty.
Speaker Change: At least betting on the on the margin that we have an equal chance of going up or down at this point, we feel really good about where we stand for our 25 got it.
Speaker Change: Yeah.
Speaker Change: Thank you for the answer and sorry, if I cut you off earlier.
Speaker Change: No Kevin My only point was I've enjoyed working with you and a lot of your a lot of your peers and colleagues two years has been.
Speaker Change: It's been a pleasure in the.
Speaker Change: The change in our industry just phenomenal it really is in the people some of the best in the World.
Speaker Change: Really proud of what we have done these last four years post.
Speaker Change: Post merger here at Devon, we have built just a focus of our company and so proud of the people here and the assets we have.
Speaker Change: Take care.
John Freeman: The next question comes from John Freeman with Raymond James. Please go ahead.
John Freeman: Good morning, Yeah, just ethylene prior congratulations to both of you Rick and clay.
John Freeman: Best.
John Freeman: Aye.
Speaker Change: First the first topic for me just obviously, we've seen a dramatic improvement in natural gas prices, Jeff you did a good job of showing on slide eight.
John Freeman: <unk>.
John Freeman: All of the options you've got on the marketing side dramatically better realizations on the gas side.
John Freeman: I can appreciate the fact that March go then to coming up with like a 2025 plan, but I'm just curious how can like a diversified asset base like you all do.
John Freeman: If there is any potential flexibility in the program, yes gas prices remain strong maybe improve further from here.
John Freeman: Any potential shift in the plan to certain assets that potentially benefit more from the really robust gas price.
John Freeman: Strip, we're looking at right now.
Hey, John This is Jeff yes, thanks for those comments.
John Freeman: It's absolutely something that we will monitor and be mindful of but frankly as we've done the analysis for a number of years when we look across each of our different basins that are all focused on that oil production in the high margin.
John Freeman: Outcome that we get from producing the oil so most of the gast upside as we highlighted on the slide we think will come from our associated gas, but theres a significant amount of additional resource under foot in each of those basins that we could go prosecute in the future as we see continued momentum around pricing. So we feel really good about the position we.
John Freeman: We think it's one of the benefits of the multi basin portfolio. It just gives you lots of shots on goal and opportunities that a lot of other companies frankly, just don't have it.
John Freeman: And again I just want to thank the marketing team for doing such a great job of.
John Freeman: Getting those molecules to market, where we see the highest demand and the best opportunity to get the highest realized price.
John Freeman: Thanks, and then just one quick one for me the 25 planned 22.
Speaker Change: Rigs how many how many frac crews does that assume I was just looking relative to <unk> and <unk>.
John Freeman: Yes, three consistent crews in the Delaware.
John Freeman: Made top that with a spot crew here and there and then about two to three other frac crews depending on how you count them during the during the time, but yes, so I call it ballpark six.
Speaker Change: Got it thanks, Scott I appreciate it.
John Freeman: You bet John.
Speaker Change: The next question is from Doug Leggate with Wolfe Research.
Speaker Change: Your line is now item. Please go ahead.
Speaker Change: Hey, guys I apologize for that column as problems earlier, but I wanted to make sure I'm traveling currently.
Speaker Change: Wanted to make sure I got a chance to come on in West break well like it's been a pleasure and.
Speaker Change: Amazing to watch what all the changes that have taken place I wish you well and clay.
Speaker Change: Over to the senior and the seats, but I do have a question for clay on for Jeff If I may and as predictable as always.
Speaker Change: One of them has to do with the balance sheet. So let me start there Jeff with us okay.
Speaker Change: When we talk about inventory depths with Devon, we've talked about.
Speaker Change: 10 years, 60, and maybe higher than <unk> and so on you guys have given this out before.
Speaker Change: If I think about what that basically means if you've got less than 3% dividend.
Speaker Change: 33 years to get your money back and Youre, telling us you've got 10 to 20 years of inventory. So so I guess my question is how do you stack the importance of the dividend.
Speaker Change: <unk> on.
Speaker Change: On the balance sheet.
Speaker Change: When you think about free cash flow because you still have 25% of your capital structures.
Speaker Change: And ultimately that amplifies your equity volatility.
Speaker Change: Depending what comes with the commodity so I guess my question is why not target balance sheet before you allocated $2 billion buyback. That's my first question. My second question. If I may just a follow up on Jon's actually.
Speaker Change: <unk> I don't know if you want to get into this in any detail but.
Speaker Change: Gas markets are obviously changing in the U S. It's been a journey.
Speaker Change: Felt for some time and you have a lot of optionality to be more than.
Speaker Change: Then talk about second order derivative gas exposure you could actually go direct example.
Speaker Change: Rather than just expanding the dose joint venture you could probably go back to a more direct spending in some of your gas play. So I'm just curious what it would take for you to do that for those to be competitive versus your liquids targets and I'll leave it there, but thanks again and congrats Rick.
Speaker Change: Yeah. Thanks, Doug I appreciate the question as always.
Speaker Change: Im probably going to sound like a broken record here because we talk about this every quarter with you but.
Speaker Change: For us it continues to be all of the above we think that the the fixed dividend the share repurchase program, which obviously.
Speaker Change: Drive our cash returns to shareholders is absolutely table Stakes.
Speaker Change: And the balance sheet without question is a priority for us you'll see from us from the framework that we lay out the first 30% of our free cash flow goes right back to the balance sheet. So I think that underscores.
Speaker Change: Our our priority for maintaining that strong investment grade.
Speaker Change: <unk> that we have today and you've seen us execute on that on that for a number a number of quarters now on top of that though again, what we've seen in the market. What we can continue to hear from our share shareholders is that the cash returns are important folks like the growing fixed dividend and then we supplement that with the share repurchase program.
Speaker Change: So when you put it all together, we feel really good about the value proposition that we're delivering and plan to execute on that well into the future I'll flip it over to clay, yes. Thanks for the question Doug that sounded like Doug We know I was thinking we might be getting a pass on that.
Speaker Change: Non non hard question for me.
Clay: Yeah, So let me start with <unk>.
Clay: We got an outperform on you're not clear we've got they've got us the hard ones.
Speaker Change: Hey Man I'm all for it I'll tell you that every day.
Speaker Change: Yeah, you bet. So let me go back to the 10 years of de risked inventory that we've talked about you've acknowledged and various and others acknowledged third party.
Speaker Change: Please don't mistake that as we're in a blowdown mode in.
Speaker Change: The 53 year old company is going to live to be 63, and then we shut the whole thing down there is no intention of that we certainly plan to rejuvenate the inventory continue to do some hard work to continue to be creative and extend the runway for decades out into the future now that's.
Speaker Change: Hard work to do I've talked about some of the organic things that we have.
Speaker Change: In hand today that we really think provides incredible value, but this company has been built on hard work and hard decisions as I mentioned for 53 years. So second let me shift to your second question on that and you talked about the gas inventory as Jeff mentioned, we do have a very substantial amount of gas inventory specifically in the Anadarko basin and.
Jeff: In the Delaware Basin, we love to test our portfolio, we've got a really cool black box model that you can put in whatever kind of scenario you want and it tells you ideally. This is how you should prosecute the opportunities that you have and so we love to test that we tested I think every oil and gas price combination you can think of and what it is.
Jeff: Keeps telling us is that even in the foreseeable future the gas prices, we're seeing today and even in the upside cases that we've run it continues to point to a robust returns related to our oil processes as our oil opportunities and so that is where our dollars are really being directed but please know that we continue to keep our eyes wide open.
Jeff: To those opportunities and absolutely there'll come a time when the coal for gas is strong enough relative to oil and will be ready because we've got some really good inventory in our portfolio today.
Jeff: It's very clear guys. We've seen a couple of weeks ago. Thanks, so much for that.
Jeff: Sounds great.
Speaker Change: The next question comes from Matthew <unk> with T. P. H. Please go ahead Matthew.
Jeff: Yes.
Speaker Change: Good morning, all and I as well wanted to pass along congratulations to Rick and clay in the new role.
Speaker Change: Just a thought there clay on the Anadarko been a while since we refresh our thoughts on inventory depth in the basin. Just curious if you might be able to give us some context around how you think about inventory, especially in the context of higher natural gas and NGL prices as you mentioned progressing that program and of course.
Speaker Change: 2025 and beyond.
Speaker Change: Yes, thanks for the question Matt we.
Speaker Change: We have needed the partnership and Dow to really.
Speaker Change: Promote the economics of the opportunities that we've had so that they can viably compete in the portfolio relative to the other opportunities and we think even in today's commodity price that that's the right move going forward displayed by our extension of the JV that we have with down now the team.
Speaker Change: <unk> to look creatively as I mentioned up and down the whole.
Speaker Change: Thinking about the rest of the base and the opportunities there expand our footprint very methodically that we've done very well on that and there will be a time when those opportunities really are on the more of the forefront for now we'll quietly keep working in the Anadarko basin.
Speaker Change: Leverage resources like this financial arrangement, so that we can make sure that we're being very prudent with the investor.
Speaker Change: And making sure that we are.
Speaker Change: Delivering the returns that we are expected to deliver in the in the organization that we have and competitively with a high quality portfolio that we have in the other basins.
Speaker Change: Yeah.
Speaker Change: Perfect and then maybe just a follow up question on the Permian you mentioned obviously.
Speaker Change: Chasing the Wolfcamp B and a bigger program for 2025 I was curious if you could maybe provide some context around how much that program made up in 'twenty for how youre thinking about it in 2025, and then I guess for the Permian as a whole how should we be thinking about the oil cut I think <unk> been averaging around 40%.
Speaker Change: 47%.
Speaker Change: Of course at the end of last year should that mix shift changed dramatically or should we expect that to be pretty constant going forward.
Speaker Change: Yeah.
Speaker Change: Yes, Matt Great question Love talking to the Delaware Basin, that's our crown jewel asset.
Speaker Change: The team there is doing some very incredible work, creating value Jeff mentioned earlier some of the work that the marketing team did and ensuring that we had takeaway capacity that's over the course of years that kind of investment and.
Speaker Change: And relationships that we have to lean on to make sure that that happens last year, we talked about digging deeper into the wolfcamp b really testing how best to prosecute those opportunities should we develop them now should we state stay later with them and so I'll, let John John Raines talk a little bit about since he was leading the team at the time.
Speaker Change: Talk a little bit more about what we learned in 'twenty four and how we're applying that to 25.
Speaker Change: Yes, Matt Thanks for the question as I said earlier were.
Speaker Change: And more to these multi zone developments and through appraisal and we've gotten a lot more comfortable with the Wolfcamp b and so we continue to lean in we feel like this is the right development philosophy for us in the Delaware Basin. So when you think about Wolfcamp b from <unk>.
Speaker Change: 2024, and 2025 I think your question was around allocation and so we're moving from about 10% of our total program in 2024 up to about 30% in 2025 that will co develop with Wolfcamp, a and I think your second question.
Speaker Change: If I heard you correctly it was around the oil mix oil mix is going to be pretty consistent in the Delaware basin year over year, I think we're somewhere around 47% last year and it may be slightly below that but but really consistent year over year.
Speaker Change: Okay.
Speaker Change: Thanks Al.
Speaker Change: Okay.
Speaker Change: The next question comes from John Davenport with Johnson Rice. Please go ahead.
Speaker Change: John your.
Speaker Change: Line is now open. Please proceed with your question.
Speaker Change: Another one of those hardware hey, good morning, guys out there.
Speaker Change: There we go thank you I'm sorry, yes.
Yes.
Mike: Mike My question has been answered, but thank you guys.
Alright, Thank you John.
Speaker Change: The next question comes from Paul Cheng with Scotiabank. Please go ahead.
Mike: Yes.
Speaker Change: Hey, guys, just a real quick follow up.
Mike: Okay for the Capex.
Mike: Capex spending.
Mike: Do you have a case and then also the number of where I was coming on stream do you have a case in that housing is going to look for the year. Thank you.
Mike: Paul Tell me again, which based on where you're talking about there the cadence.
Mike: Yeah that actually on all of them.
Mike: With that I mean, I think that you guys.
Mike: Do you expect that is going to be purely prorated throughout the year because that you all put up something that seems like that's what you suggest but in terms of actual spending and also the number of wells that you're going to come on stream.
Mike: Is there anything that we should be aware that just not really pull rate.
Mike: No Paul I would say as a general statement the Ids as they work their way through the year and this is on a gross basis are generally pretty consistent the capital actually where we think it could trend down as we work our way through the year first quarter is likely going to be the highest capex quarter for us and youll see that see that trend down overtime.
Mike: Okay. Thank you.
Mike: Yeah.
Speaker Change: So we have reached the conclusion of our call. So thank you everyone for your interest in <unk>.
Speaker Change: Devin and if you have any further questions. Please reach out to Chris or myself.
Speaker Change: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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