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Devon shares crash after production miss; Concho rewarded for Q4 earnings beat

Devon Energy Corp. shares tanked after the company missed on production projections and revealed no plans to return cash to shareholders, while fellow oil and gas producer Concho Resources Inc. was rewarded on Wall Street after easily beating earnings and production estimates.

Devon's stock plunged almost 12%, to $30.57, on Feb. 21. While the exploration and production company's earnings per share of 63 cents matched the S&P Global Market Intelligence consensus estimate, the company's EBITDA of $911 million missed the estimated $1.03 billion. The company also missed noticeably on oil, gas and overall production totals.

CEO David Hager began his comments on the fourth-quarter earnings call with a statement that probably displeased some investors, saying increased dividends and share buybacks are not in Devon's immediate future. Instead, excess cash flow will be used to drive down debt.

"With our world-class Delaware and STACK positions shifting to full development mode, it is absolutely critical that we possess a top-tier balance sheet in order to maintain consistent activity levels through all cycles," he said. "Commodity prices go up and down, but our plan to execute on a steadier and more measured development program through all cycles will optimize returns and value associated with our development programs."

Devon said it will have a capital budget of $2.3 billion in 2018, with the majority set for West Texas' Delaware Basin and the STACK play of Oklahoma.

"I can confidently state that Devon has reached an inflection point as a company," Hager said. "With our low-risk development programs focused in our top-tier U.S. resource plays, we expect to deliver a dramatic step-change in capital efficiency while delivering attractive corporate-level returns."

The company's CEO said Devon will work to sell off noncore assets over the next three years to simplify its portfolio and hopes to bring in as much as $5 billion in the process, which could fund 40% of the capital budget. "As this excess cash flow manifests itself during 2018 and beyond … we will reward our shareholders through higher dividends and opportunistic share buybacks," Hager said.

Concho reported adjusted net income of $98 million, or 66 cents per share, for the fourth quarter of 2017, easily beating the S&P Global Market Intelligence consensus estimate of a 45-cent-per-share normalized profit. The company's oil production increased more than 26,000 barrels per day in the fourth quarter compared to the fourth quarter of 2016. Concho shares gained 1.37%, to $149.48, on Feb. 21.

During his comments on fourth-quarter results, CEO Timothy Leach said the company is now into the development phase for its acreage in the prolific Permian Basin of West Texas, allowing Concho to produce more at a lower cost.

"As competition to supply the most efficient barrels intensifies, we believe this type of development is important to maximize recoveries, drive economies of scale and deliver attractive long-term economic returns predictably and consistently," he said. "As our competitors report results and provide their guidance, it's clear that the Permian, which is already the most active play, is set to see even more activity. We'll leverage our unique position to continue to execute the Concho strategy and advance our lead in the best oil play."

Concho will continue to look to add bolt-on acreage in the Permian, either through trades or purchases, while selling noncore areas. Its capital budget for 2018 will be approximately $2 billion, with 93% being used for drilling and completion work. "This level of investment is expected to grow oil approximately 20%. Importantly, approximately two-thirds of our development capital will be directed to large-scale, multi-zone projects," President Jack Harper said.