Devon focused on maintenance, plans $2 billion in 2022 upstream capex

Devon Energy Inc., Oklahoma City, plans to spend $1.9-2.2 billion in upstream capital projects in 2022, a roughly 10% increase from last year that executives say shows their commitment to a “disciplined maintenance capital program.”

The operator on Feb. 15 reported fourth-quarter profits of $1.5 billion on revenues of nearly $4.3 billion, increases from a small loss on sales of $1.3 billion in the last 3 months of 2020. Devon’s total production during the quarter averaged 611,000 boe/d, slightly above the company’s guidance mostly from high-margin growth in the Delaware basin.

Looking ahead to 2022, President and Chief Executive Officer Rick Muncrief and his team are sticking with their production target of 570,000-600,000 boe/d, with about 50% of that coming from oil, citing the backwardation in the futures market as the biggest reason for not committing to a big ramp in production. The company’s prize assets in Delaware basin will continue to be a central player in terms of output (which was 416,000 boe/d in the fourth quarter, boosted in part by a group of six wells in New Mexico that topped expectations) and growth plans: The Devon team said it plans to bring online about 220 new wells in 2022, about 60% of them also in New Mexico.

Elsewhere across its territories, Devon in 2022 plans to:

• Expand its work in the Anadarko basin by going to a three-rig drilling program from two — the company’s investments there are via a joint venture with Dow Inc. — and bringing online about 40 wells, up from 16 in 2021.
• Bring online 15-20 new wells in the Williston basin in North Dakota, where the company’s operations generated some $700 million of free cash flow last year.
• Maintain a two-rig drilling program and its production levels in the Eagle Ford, which averaged 38,000 boe/d in late 2021.
• Spud up to 10 new wells in Wyoming’s Powder River basin, which executives called an “emerging resource opportunity” and which produced an average of 19,000 boe/d in the fourth quarter.

With the Devon executive team keeping something of a lid on growth investments—despite generating about $60 of free cash flow per barrel at today’s market prices, Muncrief told analysts and investors on a conference call that “we’ll stick to our knitting” rather than really ramp up output—the company’s board has approved a hike in its quarterly dividend to 16 cents per share from 11 cents and expanded its share buyback authorization by 60% to $1.6 billion while committing to maintain Devon’s variable dividend payout at half of excess free cash flow.