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Devon Energy cuts CapEx but keeps up production on efficiency gains

Devon Energy Corp. is cutting its capital budget by $100 million but will keep its activity levels as planned thanks to increases in production efficiency, company officials said Aug. 2.

During Devon's second-quarter earnings call, CEO David Hager said the company's efficiency gains allow it to be above its guidance for oil production during the first half of 2107 while staying 17% below budget.

"As a result of this strong capital efficiency, we are lowering our full-year capital outlook by $100 million and, importantly, we have not made any changes to our planned activity levels in 2017," he said. "For 2017, our capital plan remains on track to reach 20 rigs running by year-end, and we expect to maintain this operational momentum in 2018."

Hager said Devon's presence in West Texas' Delaware Basin and the STACK play of Oklahoma allow the company to deliver "attractive returns" in spite of the disappointing price environment.

"Devon is uniquely positioned to maintain and build momentum in the future as we advance our development programs in the STACK and Delaware Basin," he said. "The quality and size of this world-class opportunity set is unmatched in the industry. Between the STACK and Delaware Basin alone, we have exposure to over 30,000 potential drilling locations concentrated in the very best portions of these plays. This premier asset base provides Devon with a sustainable, long-term growth opportunity with the lowest break-even economics of any repeatable resource play in North America."

As the STACK and Delaware Basin go into "full-blown manufacturing mode" later in the decade, Hager said, Devon will be able to liquidate noncore assets and focus even more on its two best positions. Recently, the company made a move to sell some of its holdings in the Eagle Ford Shale in south Texas for approximately $205 million.

"As these strategic objectives are successfully met, we expect to take additional steps to further high-grade our resource-rich portfolio," he said. "As our business evolves over the next several years, we see the potential to monetize several billion dollars of less competitive assets within our portfolio in a very thoughtful and measured fashion. Potential proceeds from these portfolio rationalization efforts will be balanced between accelerating the development of our highest-rate-of-return inventory and debt reduction activities."

Devon reported adjusted profit for the second quarter of $177 million, or 34 cents per share. That topped S&P Capital IQ's consensus normalized earnings estimate of 33 cents per share.