Q1 2025 Devon Energy Corp Earnings Call
Welcome to Devon Energy's first quarter, 2025 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. Rosie Zuklic, Vice President of Investor Relations. You may begin.
Speaker Change: Good morning and thank you for joining us on the call today. Last night, we issued Devon's first quarter earnings release and presentation materials. Throughout the call today, we will make references to these materials to support prepared remarks. The release and slides can be found in the investor section of the Devon website.
Speaker Change: Joining me on the call today are Clay Gaspar, President and Chief Executive Officer Jeffrey Ritenour, Chief Financial Officer
Speaker Change: John Raines, SCP-FIT Management, Tom Helman, SCP-CMP Operations, and Trello, SCP-Technology-Inchief-Technology Officer.
Speaker Change: As a reminder, this conference call will include forward-looking statements as defined under U.S. security's laws. These statements involve risks and uncertainties that may cause actual results to differ materially from our forecast. Please refer to the cautionary language and risk factors provided in our SEC filings and earnings material.
With that, I'll turn the call over to Clay.
Clay Gaspar: Thank you Rosy. Good morning everyone and thank you for joining us.
Clay Gaspar: Today we will share how we are accelerating our strategy to drive sustainable shareholder value. Our strategic priorities on slide three are clear. Executing on our high quality portfolio through operational excellence, maintaining financial strength. [inaudible]
Clay Gaspar: Returning value to our shareholders and cultivating a culture of success . . . .
Clay Gaspar: and a market characterized by dynamic headwinds Devon stays focused first on what we can control.
Clay Gaspar: Leveraging Devon's 50-year history and an experienced leadership team prepared to handle the uncertainty of commodity price cycles, we remain confident in our value creation strategy. We're committed to our capital return framework underpin by our high quality portfolio and our robust financial strength.
Clay Gaspar: With an investment-grade balance sheet and a $45 corporate break even, we are well positioned to generate value even in a low price environment.
Speaker Change: With the recent changes in leadership across our organization and the resulting fresh perspectives we believe that this is an opportune time for us to accelerate our business optimization efforts and deliver an additional billion dollars in annual free cash flow by year and 26.
Speaker Change: This undertaking demonstrates the creativity, dedication, and talent of our employees whose continued efforts advance Devon's success. We laid out our targets and our press release last month and look forward to providing additional details on today's call.
Speaker Change: Our initial expectation was for the material benefits to start to occur in 2026. We now believe that we can pull forward some progress into this year and we're cutting 2025 full-year capital by $100 million while maintaining our productive capacity for the remainder of the year.
Speaker Change: In parallel with our business optimization efforts, we will continue to monitor the broader market dynamics and adjust our plans as needed to maintain our financial strength and deliver top tier returns for our shareholders. Now let's turn to slide four and discuss our quarterly results.
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Speaker Change: Oil production exceeded the upper limit of our guidance range, reaching an impressive 388,000 barrels per day. This achievement was largely attributed to stronger-than-anticipated base performance in the Rockies and outstanding early well results in the Eagleford.
Speaker Change: From a capital perspective, we also delivered another solid quarter. Effective cost management and reduced infrastructure spending in the Delaware Basin allowed us to keep total capital below our guidance range. [inaudible]
Speaker Change: Overall, our production performance and capital discipline resulted in a billion dollars of free cash flow generated in Q1.
Speaker Change: With a significant free cash flow, we return nearly half to shareholders through dividends and share buybacks
Speaker Change: We maintain a sharp focus on discipline capital allocation, balancing high-return investments with substantial dividends, and share repurchases to create sustainable value for our shareholders.
Speaker Change: The expanded implementation of Simon Frack across the asset has been a key contributor with up to 60% utilization in our 2025 program. This increased adoption has enhanced completion efficiencies by 12% year to date and continues to accelerate our days online.
Speaker Change: On the drilling front, our teams continue to improve efficiency and optimize our rig fleet, achieving a 7% increase in drilling speeds year to date. These improvements have yielded meaningful operational changes enabling us to reduce our rig count once again in this quarter.
Speaker Change: As a reminder, we started the year expecting to run 14 rigs across the Delaware position, but now expected to reduce activity to 11 rigs in the second half of the year.
Speaker Change: Along with this reduction in rigs in the Delaware, we expect to build in some frat gaps both in Delaware and the Wilson given the improvement to our completion efficiency.
Speaker Change: Importantly, despite the reduction in rigs and frack activity, we're able to maintain our productive capacity and confidence in our production outlook.
Speaker Change: This plan highlights our commitment to capturing these improvements through capturing through capital discipline rather than growing production in a saturated oil market. Now let's turn to slide six and talk about the eagle fruit.
Speaker Change: As announced last quarter, Devon and BPX agreed to dissolve the partnership in the Black Hawk field. I'm pleased to share that this transition transaction successfully closed on April 1, 2025.
Speaker Change: Prior to closed, Devon assumed operations of one of the legacy drilling rigs, and our teams have already delivered significant drilling improvements. On our first Devon operated pad, drilling speeds increased by more than 40% compared to recent legacy performance.
Speaker Change: These efficiencies coupled with improved well design and supply chain enhancements have amounted nearly 50% reduction in costs. With the cost saving seen today, Devon is effectively recurring, incurring the same drilling capital with double the working interest in the black
Speaker Change: Going forward, we expect to realize $2.7 million per well and savings as completions will commence on our first operated pad here in the second quarter.
Speaker Change: I have confidence that our team will continue to innovate and drive further improvements as we build operational momentum. With these early results, we are delivering on our plan to significantly enhance returns while providing a material uplift to the value of our position. With that, I'll now hand the call over to Jeff.
Thanks Clay.
Turning to Slide 7, highlighting our first quarter financial performance. Thank you very much.
Devin's core earnings totaled $779 million.
Speaker Change: or $1.21 per share. Eva Dax was $2.1 billion and we generated operating cashflow of $1.9 billion which exceeded consensus estimates by a healthy margin.
Speaker Change: After funding our capital requirements, we generated $1 billion in free cash flow for the quarter, reaching the highest level since the third quarter of 2022.
Speaker Change: A free cash flow generation was underpinned by oil production that exceeded the top end of our guidance, driven by the excellent operating performance highlighted by Clay, improving gas revenues that increased twofold from the prior quarter and difficult capital investment that resulted in an impressive reinvestment rate of 50%. [inaudible]
Speaker Change: Our strong financial results supported another quarter of substantial cash returns to shareholders.
Speaker Change: We distributed 464 million through dividends and sharey purchases. Notably, we hit the upper end of our target buyback range for the quarter, spending $301 million on sharey purchases and bringing the total value of our buyback program to $3.6 billion.
Speaker Change: As highlighted on the slide, at today's strip pricing, we're on track to deliver greater than two billion dollars of free cash flow and have a tremendous margin of safety with our break even funding at around $45 WTI including our fixed dividend.
Speaker Change: Furthermore, with our production exceeding expectations in the first quarter, we're increasing our full year oil production outlook to be in the range of 382,000 to 388,000 barrels per day. This higher production equates to a 1% increase to our full year outlook.
Speaker Change: In addition, reflecting the responsiveness of the organization to an acceleration of the business optimization plan, we're reducing our full-year capital investment by $100 million to a range of $3.7 billion to $3.9 billion.
Speaker Change: Turning to slide nine, in the first quarter, our cash balance is increased by $388 million reaching $1.2 billion. This strength and liquidity position allowed Devon to exit the quarter with a healthy net debt to EBITDA ratio of one times.
Speaker Change: Looking ahead, we intend to use excess free cash flow to further build liquidity and retire upcoming debt maturities.
Speaker Change: After a quarter in, we reached an agreement to sell our interest in the Matterhorn Pipeline for approximately $375 million. We expect the transaction to close late in the second quarter with proceeds further enhancing our cash position in liquidity.
Clay Gaspar: Our next next debt maturity of $485 million is due in December and we also have the opportunity to retire our $1 billion term loan in 2026. As Clay mentioned earlier, our broader shareholder return framework remains unchanged.
Clay Gaspar: Backed by strong financial positioning, we have the flexibility to advance our debt reduction goals, fund our capital program, and continue delivering significant cash return to shareholders through our fixed dividend and share purchase program.
Clay Gaspar: Now shifting gears to slide 10 to discuss or recently announce business optimization plan.
Clay Gaspar: This initiative is designed to enhance operating margins, lose capital efficiency, and increase free cash flow generation.
Clay Gaspar: Our plan outlines a range of targeted actions to drive more efficient field level operations, including lowering drilling and completion cost, renegotiating contracts and reducing corporate cost.
Clay Gaspar: importantly, these efforts extend beyond financial metrics. They reflect the strategic integration of technology across our operations and reinforce our commitment to achieving industry leading returns.
Clay Gaspar: We believe the impact of these initiatives is substantial and then locks meaningful long-term value for our shareholders.
Clay Gaspar: At our current valuation multiples, capitalizing the after-tax impact of the targeted $1 billion of incremental free cash flow could translate to an estimated $10 per share in value, highlighting the significance of this work.
Clay Gaspar: Turning to slide 11, we outline the improvements by category and the timeline for achieving them. As you can see on the pie chart, we expect our business to achieve $1 billion pre-cached, free cash flow in sustainable annual improvements by year in 2026 as compared to our previously guided 2025 baseline.
Clay Gaspar: Beginning at the top with capital efficiency, we are targeting 300 million of improvements by year in 2026. These capital enhancements are structural and assume steady service and supply cost. Set another way we have not assumed the benefit of any deflation from current price levels.
Clay Gaspar: Moving clockwise on the chart to production optimization, we expect to achieve 250 million of improvements by reducing downtime, flattening production declines, and optimizing our operating cost structure.
Clay Gaspar: For commercial opportunities, our marketing teams contracting strategies are expected to deliver 300 million in total improvements by increasing realizations and lowering GP and T-cost.
Clay Gaspar: and finally, corporate cost reductions are expected to be $150 million to arrive from lower interest expense, corporate capital, and GNA.
Clay Gaspar: From a timing perspective, we are acting with a sense of urgency, as shown in the bar chart the right, these combined initiatives are expected to deliver approximately 400 million of cash flow uplift by year in 2025.
Clay Gaspar: Half of this uplift stems from renegotiated contracts already secured by our marketing organization, which would generate over $200 million in improved margins, primarily benefiting the Delaware Basin through lower gathering, processing, transportation, and fractionation costs.
Clay Gaspar: These savings will begin to materialize in late 2025 with full-year impact in 2026. To be clear, we have not included any benefit related to the sale of our interest in Matterhorn Pipeline in our business transformation uplift potential.
Clay Gaspar: of the 400 million and expected uplift to be captured by year end, 100 million is attributable to our capital efficiency and production optimization efforts and represents capital reduction to our 2025 guide disclosed earlier in our comments.
Clay Gaspar: With the increased free cash flow, we will remain committed to rewarding shareholders to sharey purchases and growth in our fixed dividend, while also strengthening our financial position through continued debt reduction.
Clay Gaspar: Slide 12 provides examples of the type of work our teams are pursuing to achieve the targets for each category .
Clay Gaspar: I won't talk through the detail now, but in our Q&A session we're happy to provide some additional color on how we're driving change with our business optimization efforts in creating long-term value for Devon bottom line as the teams have proactively begun implementing many of these initiatives were confident in our ability to achieve our targets and have clear line of sight to our objective. Thank you.
Rosy Zuklic: With that, I'll now turn the call back over to Rosie for Q&A.
Rosy Zuklic: Thank you, excuse me, thank you, Jeff. We'll now open the call for Q&A. Please limit yourself to one question and one follow-up. With that, Emily, we will take our first call.
Speaker Change: Thank you. Your first question comes from Neal Mehta with Goldman Sachs. Neal, please go ahead.
Neil Mehta: Yeah, thanks so much. And you know, it was start off with unpacking the cost reductions.
Neil Mehta: here on Slide 10 and 11 that you talk about Clay and you get an opportunity, kind of.
Neil Mehta: Talk about your compliments and turn of roll around, achieving it when we can really see the run rate
Speaker Change: and help us to really itemize some of these buckets. I think people can kind of understand the corporate cost reductions, but some of the other things like commercial opportunities are a little harder to put our head around. So just kind of flesh it out a bit.
Speaker Change: Yeah, thanks Neil, appreciate the question. But I would tell you, you know, so we've done a good job of pointing to things that we can achieve in 2025. Again, pulling some of those values, as you saw the capital reduction, as you start working through the list of the other items, I get that it becomes a little bit up too. So I'll tell you what, happy to follow up on that. We've got a few of the experts in the room. I'll start with Jeff and he can start talking about some of the commercial aspects of it. [inaudible]
Jeff: Yeah, Neil, thanks for the question. Yeah, I'm happy to jump in and talk a little bit about commercial opportunities. Frankly, that's where we have the absolute highest confidence because we already have those contracts executed. They're in place and they'll take effect at the end of this year and really into 20, 20, 20, 26, you'll get the full run rate benefit of that just to give you a little bit of color on what we've done there. So not a surprise to you. We have multiple midstream partners in the Delaware. In addition to the midstream infrastructure that we already own,
of the FMCG.
Speaker Change: Hey, Neil, in addition to that, John's here. He can talk a little bit about some of the opportunities in the production optimization. Yeah, Neil, thanks for the question. So so far you've seen a hundred billion dollars for 2025. Some of that's coming in the form of production optimization. Thank you very much.
John: We've seen an incredibly resilient base in the Rockies thus far this year, and so that's some of the good work that we're already taking credit for [inaudible]
Just to give you some ideas.
John: on The Go Forward. We've got projects that we listed in the slide deck. I'll hit on a few of those just to give you some more color.
John: Over the last several years, Devon sought to really improve our reliability through planned maintenance, but a lot of that maintenance.
as been calendar based to date. So...
Equipment,
Essentially, gets maintained whether it actually needs...
that maintenance at that time or not. And so...
What we're attempting to do there is use-
Advanced Analytics, KPIs. [inaudible]
John: and move that essentially to condition-based maintenance of the idea that we could eliminate some of those ineffective or potentially wasteful maintenance activities.
John: and so that will help us reduce on the LOE front.
. . . .
John: Another one I like to talk about is our smart gas lift calibration. Devon uses a lot of centralized gas lift in certain assets.
Predominantly in the state line area [inaudible]
John: and the Delaware Basin, and also in the Williston Basin. And sometimes these operations can be a little bit constrained on the gas lift injection. And so when that occurs, we've got suboptimal lift occurring.
John: And so this is a project that we're already advancing. We're looking to use real-time analytics and AI models.
John: Okay, so I'll continue with these real-time analytics and AI models.
Essentially determine how much gas to allocate to each well for...
John: Optimal Performance, and so those injected injection rates are pushed directly to end device for...
John: Adjustment. So, again, where we have these big centralized gas lift operations, we expect to see some pretty significant uplift there. And as opposed to the project that I described earlier.
John: This largely comes in the form of lowering our downtime and flattening our base decline curve. So it gives you a little flavor. We expect to see some of this on the yellow east side and expect to see some of this through improved production, which would eventually come in the form of lower capital.
Neil, are you still there? Yeah.
John: Thank you, moving on to our next question which comes from Arun Jayaram with JP Morgan.
Speaker Change: Yeah, Jeff, just to follow up, I just wanted to see if you could just maybe clarify your comments on the lower G P and T rates.
Speaker Change: in the Delaware. Can you maybe give us a sense of what this would do to your broad GP and T-cost per unit if we were to translate that into our models in 2026?
Speaker Change: Yeah, you better run, just to give you a little bit additional color, as I said, it's really specific to our NGL business. There's some on the gas side as well, but that's where the biggest driver this is. Just to give you a sense, you know, we had some legacy contracts that were...
Unknown Executive, Rosy Zuklic, Richard Muncrief
Speaker Change: It'll show up in better realizations for us as well. So, a combination on the financial statement between realizations and our GP&D cost
Thanks Jeff.
Neil Mehta: You guys highlighted some divestitures, your interest in Matterhorn and some real estate assets. So what on clay, if you could highlight some of your incremental midstream investments that you have at Devon that could be subject to future monetization.
Neil Mehta: Yeah, thanks for the question, Arun. You know, we have a lot of midstream assets in particular.
Neil Mehta: that hold various values to us. We've highlighted a few times.
Neil Mehta: The value that Grayson Mills brought along with the midstream assets and what that can mean to not just the individual well economics but the increase related to the amount of Portillo options we have there.
Neil Mehta: and so sometimes it has really interesting and incremental value. I would say there's other parts of the midstream asset portfolio that we make question, is this the right, is something for us to continue to hold on to?
Neil Mehta: without going into details one but one for one. I would just tell you we're taking a holistic look.
Neil Mehta: that maybe there's sometimes we need to expand our midstream footprint to replicate what we're doing there with the Grayson Assets.
Neil Mehta: and I would say there's other times, for example, with Matterhorn, where it's kind of served its purpose. We continue to hold on to that capacity, which is incredibly valuable. But the equity ownership clearly wasn't reflected in our organizational value, and therefore when we monetize, it's just additional cash. So I would say there's more of that to come, but it's too early to tell which direction we're going to be going overall as a corporation. [inaudible]
Thanks a lot.
You bet.
Speaker Change: Thank you. The next question comes from Doug Leggate with Wolf Research. Please go ahead, Doug.
Speaker Change: Once again, maybe that's your line of those questions, please proceed with your question.
Speaker Change: We are getting no response from Doug's line and we're moving on to our next question which comes from Paul Cheng with Scotiabank.
Please go ahead, Paul.
Thank you. Thank you guys. Can you hear me okay? Okay.
Yeah, Paul, thank you. Hello Hello.
Okay, good. Two questions, please. First, I think...
Speaker Change: Jeff and Clay, you guys talking about on the business optimization, seems like technology is going to be a big piece of that.
Speaker Change: Can you give us some understanding then? I mean, how that the adoption now you are doing is different than what you've been doing?
Speaker Change: and also that how you are different from the rest of your peers.
in terms of the adoption of the technology.
Speaker Change: and can you give us some examples there? What's Neil at the option versus what you guys have been doing? That's the first question.
Speaker Change: The second question is that when we're looking at these models, not lying in the database, and comparing to the number of weld that you bought on the production is a little bit light for us.
Speaker Change: Wondering that there is some one-off item other than say the winter storm, is it the catering of the well coming on stream throughout the quarter is different than a more way of the world is back and noted any kind of maybe the colors that you can provide that will be great thank you.
Yeah, thanks, Paul. You know, I love-
Speaker Change: Technology, Near Near To My Heart, and one of the changes we made organizationally was promoting Trey Lo, our Chief Technology Officer, to the Executive Committee.
Speaker Change: and I think it's just already paying huge dividends. I have a ton of faith in our organization's ability to embrace technology across the board, but I'd love to portray to expand a little bit on some of the things that he sees, one as a leader of technology, but also the leader of our business optimization project.
Speaker Change: The things that are new, John highlighted a couple in the production space that will be underpinned by new technologies that we've been investing in over the last few years, the other one that I would highlight.
Speaker Change: and when you mix that with the competency that we built in our teams. [inaudible]
Speaker Change: and the alignment that we have across our leadership group to use that data. We're going to continue to see those advantages on the productions.
Let One The Production Space
Speaker Change: One of the exciting projects that they have in our business optimization program is to take all of that real-time information and start running both physics-based models and algorithms in real-time at scale.
Speaker Change: across all of our wells to reach an optimal flowing condition for each well and so we're going to see the implementation of that over the next year and that's a significant portion of that $250 million of targets that we have in the production optimization space.
Speaker Change: and then the second example that I love to talk about is AI and what we think that will mean for our company and for our bully base.
Speaker Change: And this year we've rolled out a brand new platform for all of our employees and honestly it's cotton like wildfire across our employees and so we've seen productivity boost from various domains up to 15 to 30% on the projects that they're working on.
Speaker Change: around things like, how do you optimize cymbal frack on a whale? Or how do you take mud logs and cutting descriptions? [inaudible]
Speaker Change: and used AI to give you a better geologic answer and so we're starting to see all of those things kind of flow through the company and that productivity boost for our employees and we're empowering a group of individuals that are already aligned to using these tools and we're real excited about it.
John: And then Paul, for your second question, John , don't pick that one up [inaudible]
Hey Paul, you're your question on the Delaware Basin.
John: There's a few things I'll highlight there. One, yes, from a gross wealth standpoint.
John: We brought on quite a few wells in the Delaware base, and we did have a little bit lower working interest in Q1, so from a net wells perspective, we're pretty similar to
what you saw in Q4. [inaudible]
John: The second thing I would point to there is the cadence of those wells was later in the quarter so you got less production contribution.
John: from those wells in the quarter, and that's a little bit of the phenomenon you're seeing. You mentioned the weather. That was certainly a factor. We did see some minor weather downtime. Um,
also in Q1 in the Delaware Basin.
John: But what I would tell you is, you know, from a well productivity standpoint, going back to Q4, what we're seeing in Q1, we're really pleased with what we're seeing, especially early time. Most of our projects and our major programs are meeting to exceeding expectations, so despite what you're seeing, we're really, really pumped about what's going on in the Delaware. Thank you for your time.
Thank you very much.
Scott Hanold: Thank you. The next question comes from Scott Hanold with RBC. Please go ahead.
Scott Hanold: Yeah, thanks, good morning. Clay, you know, maybe give your view on sort of the broad macro trends. A lot of your peers have, you know, made some cuts to their activity level, bringing down production, relative to prior expectations.
Speaker Change: And a big part of the effort, too, was to continue to hands-free casual.
Speaker Change: You know, when we first think about the macro and we think about the commodity price and how it affects our investment decisions, we think about things through really kind of three lenses, you know, one is the corporate break even as we mentioned earlier, $45 including our dividends.
Speaker Change: That's kind of one test. We think about the well returns the economics [inaudible]
Speaker Change: But we also think about the operational objectives and the associated distraction of
Speaker Change: But as you mentioned, those are operational changes and not really a reaction to the macro. When I think about the macro today, the forward curves relatively flat, relative to the last couple of years, hovering around just under $60. We're watching that, we think about these incremental, these marginal investments.
really in the 12 to 24 months. [inaudible]
Timeframe,
Speaker Change: and when I look at that curve, it still passes the test. [inaudible]
Let me tell you, we're very...
Speaker Change: We're very self aware, we're thinking about what's going on, we understand our flexibility, we're reviewed all of our contracts, we have a tremendous amount of flexibility and I would say we're closer to taking those kind of actions but not quite there. I think when market gets little closer to the low 50s and we feel like that has some sustainability. Building.
Speaker Change: I think we'd be more likely to take more aggressive actions.
Speaker Change: in addition to the maintenance capital mode that we're in now. As for now, we'll take the operational improvements, accrue that to capital savings.
Speaker Change: and continue to build free cash flow related to that. And then again, the business optimization is our incredible focus on driving more and more free cash flow, which we think has a tremendous amount of uplift for the organization and ultimately for the investors.
Speaker Change: and that's on the back of some really focused work by the organization and not yo-yoing them around too much.
Speaker Change: Appreciate the comment, and I think this one's for Jeff, you all have tagged roughly what $200-300 million per quarter on stock by HVACS, and obviously related everything we were just talking about. A lot of the equities in energy have come down quite a bit including Devon as well.
Speaker Change: You know, given that you're pulling forward some of this optimization value, and you've got, it sounds like very good visibility on achieving it, does it make sense to maybe step up by backs a little bit in the near term and utilize some of that free cash flow opportunistically?
Speaker Change: Yeah, Scott, thanks. I appreciate the question. And yeah, we've thought a lot about that and do consistently debate that with our board. You know, each quarter is based on the macro environment and our broader strategic objectives. At this point, we feel very committed and not changing our game plan. So you're going to continue to see us execute on the two to three hundred million range of share repo each quarter. Obviously the fixed dividends in place. We expect to grow that annually. And then any incremental free cash flow that comes back to the balance sheet.
Clay Gaspar: We're going to use that to bolster our liquidity and then ultimately pay down our debt over time so no change to our financial framework at this point in time. As Clay said, we're obviously not sticking our head in the sand. We're going to watch the market and adjust accordingly, but we feel confident in our approach and don't have any plans to change that at this point. [inaudible]
Thank you.
Speaker Change: Thank you. Our next question comes from Kalei Akamine with Bank of America. Please go ahead.
Speaker Change: , , , , , , , , , , , , , ,
Calais Ackermine: Hey, good morning, guys. I want to follow up on the Permian Basin. In the first quarter, you had the bulk of the tillers in this year's program here in this quarter. And I have to imagine that there's a few wolf camp bees in there. Can you talk about the predictivity that you're seeing so far? How does it compare to tier 1 doughnuts like the A bench? And are there any noticeable differences in the oil rates or in the oil and gas mix?
Speaker Change: Peccale, this is John . What we're seeing right now from the Wolf Camp B is fairly consistent with our expectations.
Speaker Change: What I would tell you about the Wolf Camp B is you see a lot of variability in the oil cut or the oil production throughout the basin and so when you think about our acreage footprint [inaudible]
who are quite diverse.
Speaker Change: We've got stuff up north in Eddy County, stuff up north up in Lee County.
Speaker Change: you go down to our state line area across the border.
Speaker Change: I'd say as you go further to the north, we see quite a bit higher will cut, easy production characteristics that are more aligned to the upper wolf camp.
Speaker Change: And as you go south into the state line area, maybe ever to our monument draw area, you see a little bit gasier type oil contribution, more consistent to a condensate play.
Speaker Change: But I'd say overall what we're seeing, what we're bringing on from an oil standpoint is fairly consistent with our expectations.
Speaker Change: Got it. I appreciate that killer, John . Maybe this one is for Clay.
Speaker Change: Clay, in your business improvement plan, there's a GPNT piece that you've kind of discussed here on this call, but when you look at your position, particularly in the Delaware,
Speaker Change: Do you see any other opportunities to remove fixed costs and the gathering and transportation side maybe by buying in certain assets and whether and do you think this could be maybe a good use at the Matterhorn proceeds? [inaudible]
Speaker Change: I think it's a great question and I'll go back to the comments around the earlier question about additional midstream actions. What I would say is, look, we're very objective about the value of midstream and sometimes it accrues to the positive for us to own those assets. Sometimes it's essentially a service purpose and it makes sense to liquidate those and redeploy those proceeds into something else. With Matterhorn specifically, that's above and beyond as Jeff mentioned on his prepared remarks.
Speaker Change: That is not part of our business optimization proceeds. Those are above and beyond go straight to the balance sheet and then preserves that liquidity for future use.
Speaker Change: I would say other assets maybe they become more valuable in someone else's hands. We continue to have those conversations remain objective about all of these midstream assets. And I would tell you at this point it could go either way from us. And I would say I would say I would tell you at this point it could go either way from us.
Speaker Change: Adding more interest in some of these assets to liquidating as we've done with some of those. So you've seen this kind of see the benefit from both sides of that and we continue to explore all avenues to create incremental value for our shareholders.
You got it, thanks for that color Clay. [inaudible]
John Freeman: Thank you. The next question comes from John Freeman with Raymond James. Please go ahead, John .
John Freeman: Thank you. I like the new presentation format that's in there. I was looking at slide four, we all sort of showed that.
John Freeman: The reinvestment rate you've had the last couple of years, the time of hovered around 60% of the time.
John Freeman: I know once you got down to 50% but just based on y'all [inaudible]
John Freeman: Outlook for the rest of the year at College of Psychial Oil, it looks like it's implying. You'll end up with kind of a pretty similar kind of reinvestant rate to what you've had the last couple of years. I'll be at. [inaudible]
John Freeman: and more than $10 lower oil price. I'm just trying to think about how important the reinvestrate is when you all come up with budgets. There's some of your peers that target a reinvestrate to get to their budget. Maybe if you can speak to that.
John Freeman: Yes, John , as you know, a lot goes into that and it can move pretty dynamically with commodity price.
with Service Costs,
Obviously, as we're, you know, and John Team specifically. [inaudible]
John Freeman: trying to drill the very best wells from the opportunities we have just tweaks on completion design and productivity can also accrue to that as well. So I think the reinvestment rate is a consideration, but it's not what we goal seek for on the overall budgeting. We keep an eye on that, we watch that we certainly have an intended objective to stay in this range, but it's not necessarily the singular thing we're focused on when we're [inaudible]
Speaker Change: Understood. My follow-up question, y'all highlighted during the-
Speaker Change: In the quarter for Q2, at least that you're expecting 50 million.
Speaker Change: of Capital related to multiple land trades in the Delaware that's this can impact, you know, over 30 miles. And just curious if that's like a renewed focus of the company or this just sort of a one offer a few things cut it down, but it's during this upcoming quarter.
John Freeman: Yeah, John , thanks for noting that. I mean, this is the, this is awesome ground game work by the team. We hope to have more and more of this. This is trades.
You know, low cost.
John Freeman: Now, the challenge is in doing those trades, it also brings capital with it and so it's a great point to highlight the $100 million of savings that we're talking about moving from a midpoint at $3.9
to a 3.8.
John Freeman: is additional to this $50 million that you pointed out from these trades. That's a capital that was drug into this year for some great work that the teams have done.
John Freeman: and then also, remember, as we move faster, we continue to drill faster, a complete faster, that would normally bring in additional capital, I would say in years past.
John Freeman: We've taken that, we've kind of accrued that benefit through the production side.
John Freeman: and so without any mitigation steps, that 3-9 would have moved to 4.0 and then with that extra 50 it would have been 4.
450 million, 450 million, 450 million. [inaudible]
John Freeman: and so what we're doing is we're moving from that point down to a midpoint of 3.8. It's really a change of about $250 million kind of point to point. And so things like that we will continue to do. We're not always going to be able to do that level of scale but remain very opportunistic. The team's doing a great job of looking for those trades. [inaudible]
John Freeman: You know, it brings back the dissolution of the BPX deal. That's $0 out the door.
John Freeman: You know, something we've been working on for a very long time, but accrues to a huge amount of value creation for the organization. We're looking for all of those things, and that could be in the form of midstream, it could be in the form of asset trades or a number of things. This is what the business optimization is really on the back of kind of. [inaudible]
John Freeman: Where do we create value from all facets of the organization? And I can tell you, it's really empowering to the organization. There's a lot of excitement around the organization from North Dakota to South Texas in a singular goal really being focused and we're seeing a lot of momentum from this.
Thanks, Clay, I appreciate it
You bet, John.
Speaker Change: Thank you. The next question comes from Betty Zhang with Bach, please. Betty, your line is now open, please go ahead.
Bessie Jang: Hi. Good morning. Thank you for taking my question. I want to go back to the cost optimization and maybe ask differently that there are just many moving pieces that manifest in the financials.
Bessie Jang: but it's clear that the benefits is going to occur to a lower cat-backed number.
Bessie Jang: between the efficiency gains, the production optimization, and maybe any leading edge cost deflation that you're seeing in the market. How much can we see maintenance catbacks coming down over the next couple of years?
Speaker Change: Yeah, let me start that and I'll hand it over to Jeff to give you a little bit more color. When I appreciate the acknowledgement of these midi-moving parts, one of the things in Jeff's prepared remarks that he said, I just want to underscore once more, we could be entering a period of deflation, given rig drops in the macro environment.
Speaker Change: are not counted in business development, this business optimization project, they will be in addition to and so our goal going forward on a quarterly basis will be an attempt.
to update the investors on this progress.
Speaker Change: trying to separate all the moving parts, commodity price and inflation, deflation, and all these other things, but it's our commitment to you to make sure that you know this is above and beyond. We run this at a base mid-cycle price deck at the beginning of at the guidance we provided the 25 base plan and then these other changes above and beyond that. [inaudible]
Speaker Change: You know, one will either fall into business development or in the case of a deflationary benefit, that's separate and apart [inaudible]
Speaker Change: Jeff, other comments? Yeah, Betty, I would try to put it as simply as this, you know, we've got a base level 2025 baseline guide, you know, today at 3.8 billion, when you put together a capital efficiency and some of the corporate capital costs that we've highlighted in our business optimization plan, you get down to a maintenance number closer to kind of 3, 4, 3, 4 and a half, right, as it relates to the go-forward maintenance capital for the company, that's when you fast forward to 2027 obviously after we've done all this work and that's
Speaker Change: Jeffrey Ritenour, Unknown Executive, Rosy Zuklic, Richard Muncrief, Richard Muncrief, Unknown Executive, Rosy Zuklic, Richard Muncrief, Unknown Executive, Richard Muncrief, Director that would be the kind of maintenance capital profile that we look to be delivering on going forward. All this effort around our business optimization is focused on driving that breakeven that we talk about a lot lower in our business, right? And so at the end of the day, that's got
Speaker Change: And one other thing I would just add to that, when you lower their break even, and you're not drawing on that Portillo quite as hard, in effect the side benefit is you extend that Portillo even further. So again, lots of business opportunities. We are very focused on this, as I said, the organizations really fired up. There's so many...
Speaker Change: and additional benefits that the people sitting around this table are not going to, can't see today and can't even predict. And that's where I get most excited is when the organization just organically is warning to be part of that, embracing technology, driving efficiencies, accruing that to value either through production or lower cost structure, ultimately driving our maintenance capital down. And as a side benefit, continuing to benefit our portfolio and extend the runway on it. [inaudible]
Speaker Change: Great. Now, that's super helpful. Appreciate all that color. And I understand the.
The service cost deflation is really incremental. [inaudible]
Speaker Change: Maybe on my follow-up, Clay, you mentioned earlier that you're not looking to take more aggressive action unless prices go to the low 50s.
Speaker Change: and just acknowledging the momentum that you were seeing across all the bases. Permian, you're doing really well on efficiencies, you go for with the solution of the JV.
Speaker Change: Like, which asset do you think has more flexibility to slow down? And I know it might be a more difficult question to answer right now, but we'll love to get some color on how you think about it.
Speaker Change: In the powder river basin, it's some of the most challenging economics. Objectively, it's just earlier in its development, we're still working on driving down cost structure, increasing the productivity and the consistency, which we're seeing a lot of wins. That operational momentum that we've generated over the last few years has been on the back of one rig. Okay, that is an area that probably, even though it's the most challenging on the single well-rated return state of the art
today.
Speaker Change: Probably has the most upside potential from value creation for continuing to invest in assessing and understanding and really leveraging that incredible footprint that we have.
Speaker Change: You've seen us actually lower and flex the operations on it because we have the ability the scaled delivers.
Speaker Change: to drop rigs, take a little bit more of a slower pace on some of the fracked holidays that we're going to be baking in, and that allows us to deliver incredible productivity for our crown jewel asset.
Speaker Change: and do it in a paced way that extends that inventory even longer. So it is a complicated answer. What I would say is
Speaker Change: We'll continue to evaluate with lots of options. We don't have, you know, from years of the past, we're thinking about other burdens that we might have experienced a decade ago around long-term rig contracts or minimum volume commitments on pies or trying to hold least positions together. We're not burdened by any of that. So with a tremendous amount of flexibility, we're very objective about this but we're also very thoughtful about the costs and the consequences to the operational improvements that we're making. And right now, we're really focused on [inaudible]
Riving the value through that lens.
I appreciate all of that. Thank you so much Thank you.
Thank you, Betty.
Speaker Change: Thank you. Our next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin, please go ahead.
Speaker Change: Hey, good morning, too. But you kind of touched on this earlier, but just to confirm, you've lowered your average recount in Delaware from 14 to about 12 this year. Your turn in line count is still the same.
Kevin McCurdy: Will that have any impact to your wells and progress at the end of the year or your ability to grow in 2026?
Kevin McCurdy: We're very thoughtful about looking ahead to 26 in any actions we take in 25. Clearly the spuds that we have for the balance of the year essentially all of the value occurs to 26. So,
Kevin McCurdy: To hit the question on the head, we are not sacrificing 26th's productivity. We're doing this in a consistent approach. We're thinking about what maintenance capital looks like continuing to invest in that. And when we rewind back, the graphic actually shows not too long ago, we're running 16 rigs beginning the year we were 14 and we expect to get to 11 rigs.
Kevin McCurdy: on the back of the same amount of productivity output. So that accrues in a few different ways. We're drilling faster, much more efficiently. We've got, you know, the efficiency of the lateral length, how much productive lateral length we have. And then also the productivity of the wells continue to accrue to the upside. You know, some of the great work that John seems doing. Understanding that subsurface is highly valuable and critical. And that's where we create a tremendous amount of value that's hard to put into a graphic form. But we're continuing to see that the
at that there.
Kevin McCurdy: Great, I appreciate the clarification on that. And as a follow-up, you know, as you look out on your portfolio, if will prices continue to lag and gas stays strong, are there any areas where you would consider shifting activity towards or away from just giving commodity mix?
Kevin McCurdy: Yeah, we're always taking that consideration. We're pretty agnostic on where we create value.
being wish-basin, which commodity? [inaudible]
Kevin McCurdy: Look to how we make those adjustments. Again, with the thinking in mind that we don't want to chase false positives or yo-yo the organization.
Kevin McCurdy: Front Moth, Contango, Backwardation, and we've refused to kind of chase the false positive.
Kevin McCurdy: You know, this feels a little different. There's a lot more stickiness. There's probably a compounding effect of the headwinds and so I would consider us on essentially on high alert in regards to wear commodity prices heading. Again, you're starting to see a flat curve kind of reinforcing that this could be a little bit lower for longer. Again, we have the capabilities to step down activity. Consider us on high alert at this point.
. . . . .
Thank you.
Yvette,
Speaker Change: Thank you. Our next question is from Matthew Portillo with TPH. Please go ahead Matthew.
Matthew Portillo: Good morning all. I just wanted to unpack your caballocation, the Rockies a bit.
Speaker Change: Looking at the program this year, I think the plan calls for about 70 to 75 gross wells in the in our math that would probably translate to around 650 to 700 million of capital.
Speaker Change: I was curious if that's a good number to think about for your Bachin program in 2025 and if you've been able to make any additional cost outs on the program since taking over the grace and asset.
John Freeman: Yeah, Matt, this is John , I think those numbers are still good, we're, you know, for total Rockies, we're targeting 80 to 90 Wells, you're about right on what that's
John Freeman: I'm going to mean for the Williston Basin specifically, I'd say specific to Grayson.
Speaker Change: That integration continues to go great. We're continuing to see the synergies there, whether it be from refraxed all the way to infrastructure and facilities. We've talked about a $600,000 wealth synergy there, you know, I think since the beginning, I've got Tom helmets that next to me.
Speaker Change: I think it's a good opportunity for him to talk about some of the ongoing improvements that we've seen through the first quarter that might help you give a little bit better view of what's going on there.
Yeah, hey Matthew, this is Tom, Um, um,
Drilling Pace actually is up an additional 19 percent.
Speaker Change: to the plan and drill costs are down now 15%. We also have completion costs down an additional 8%.
John Freeman: and so, as John said on a per well basis, we're talking about an additional 600,000 dollars.
John Freeman: to the plan. And a lot of that's just really pushing the ROPs, working with Trey's data and some real-time data, getting some record wells in the ground. And on the completion side, we've gone to Full Samilfrack.
John Freeman: and actually did a complete relook at the completion design and we went to a hundred mesh and self sourcing that so that was substantial savings on the completion side as well.
John Freeman: What might be driving the elevated capital in the play this year? And is that potentially a lever you could pull down into 2026 to improve your corporate capital efficiency until the macro environment improves?
John Freeman: Yeah, I think my answer is going to be pretty consistent with what Clay talked about there.
that, that,
Powder Program this year.
at roughly 15 welds, is entirely focused on the Nive Rare, and so-
Speaker Change: You know, Clay talked about it being early innings in the play, Clay talked about there being significant upside in the play.
Speaker Change: and so any kind of relative change in capital you've seen probably relates to that program being a hundred percent focused on the nightmare and so with that
You know, our objectives are pretty clear.
Speaker Change: We've got a little bit of a frame of work that we're doing if we can improve the productivity of those wealth.
Speaker Change: Visited to say we're also working with our consistent program to drive down costs.
Clay Gaspar: and we've seen some really good benefits there. Obviously what we see this year, and that's what Clay said, and on the macro, we'll have to look and see next year but those are our strategic objectives at least for that program.
Speaker Change: that you were kind of pointing to. So we'll follow up with you after the call. I think roughly we're about 12 million or so per well.
Speaker Change: That's on my 8-8 spaces. That's down from 15, and we have a line of sight vision to 11 and below. My personal line of sight is below 10, just to let the teams know. And so we'll continue to work that direction, but that's on the back of a lot of great work from the organization. Continuing to drive efficiencies, record setting, well, Tom was the latest $116 of foot.
Tom Hellman: and what does that translate into days for a 3 mile well? 9 or 10 days? 9 or 10 days, 3 mile wells in the Nibbara.
Tom Hellman: Right about that one. That's pretty impressive. And again, more to come on that from a completion cost. It's a light infrastructure. We have very little localized infrastructure. So we're doing things like investing in a sand mine so we can get our local cost down. We've built a recycle facility so we dispose of no water in the base and all of that goes back. [inaudible]
Tom Hellman: to back into frack water for the wells. Some of that costs money up front, I'm sure that someone that'll be baked into these.
Tom Hellman: to these numbers you're talking about, but excited about where we go from here. And again, tremendous asset with lots of running room. Continue to run that, but everything on the table is we can move into a more distressed environment. Thank you very much.
Thanks so much.
E-Bet.
Rosy Zuklic: Thank you. Those are all the questions we have time for today and sold chemical back over to Rosy for closing remarks.
Rosy Zuklic: Thank you, excuse me, thank you, and thank you for your participation in our call today and your interest in Devon. If you have additional questions, Chris and I are available, so please give us a call.
Rosy Zuklic: Thank you everyone for joining us today, this concludes our call and you may now disconnect your lines.