Thursday, June 28, 2012

Natural Gas: "Third Avenue Management Comments on Devon Energy Corp" (DVN)

Devon is one of the class acts of the Nat biz. See May 1, 2012: "Natural Gas: "Devon Energy: Undervalued, Underrated" (DVN)":
This month we will be looking at some of the classier Exploration&Production companies.
Unless you have a five year timeframe it is still too early to make major commitments but we will be referring back to these commentaries later this year.
The stock close at $69.85 on Monday....
The stock is changing hands at $55.82 today.

Third Avenue Management is a deep value, even distressed, investor running $15 Bil in a handful of mutual funds and separate accounts. The recently got a new president:
 David Resnick, chairman of global financing advisory at Rothschild North America Inc., is leaving the investment bank to become president at Third Avenue Management LLC, said four people familiar with the matter....

From Gurufocus:
From Marty Whitman's second quarter 2012 letter:

As discussed in last quarter's letter, a new position was initiated in Devon Common (DVN). We added modestly to the position this quarter. Devon Energy Corp. is an Oklahoma-based oil and gas exploration and production company. In April, I attended the presentation of Devon's CEO, John Rickels, at the IPAA Oil and Gas Investor Symposium in New York City. The highlight was the company's discussion of its long-term growth outlook: production is projected to increase from 240 million barrels of oil equivalent ("BOE") in 2011, to 340 million BOE by 2016, representing a 7% annual growth rate. This growth is projected to be driven by high margin oil and natural gas liquids ("NGLs") annual growth of 16% to 18%, while natural gas production declines slightly. The company should retain a very strong financial position throughout this period, as most of the growth is expected to be funded by operating cash flow (the company expects to use only $1.5 billion of its $7 billion in cash over this period).

In early May, Devon reported first quarter results that showed significant progress. The company generated 10% year-over-year production growth, driven by increases in oil and NGLs production of 26% and 21%, respectively. The company's Jackfish oil sands projects in Canada generated a 55% increase in production, while oil production in the Permian basin in Texas, which has been revitalized by the application of horizontal drilling technology, increased 32%. The primary negative factor was low natural gas prices, which declined 35% to $2.34 per thousand cubic feet equivalent ("mcfe"). Fortunately, Devon's realized price was $3.02 owing to gains from its hedges, and the company has about 40% of its natural gas production hedged at $4.42 per mcfe for the balance of the year....MORE