In response to the challenging commodity price environment, Devon Energy has announced an immediate decrease in capital spending of $500 million for the full-year 2020. The revised capital budget of approximately $1.3 billion represents a decline of nearly 30% compared with its previously announced 2020 capital plan.
The $500 million of capital reductions will be diversified across Devon’s portfolio, with the STACK and Powder River Basin assets receiving the most substantial cuts proportionally. To optimize go-forward investment, the company will focus its development activity in the Delaware Basin and Eagle Ford within the economic core of these top-tier plays. The company expects to provide a detailed update to its 2020 guidance in conjunction with Q1 reporting.
“With the challenging industry conditions, we are committed to taking decisive actions to protect our balance sheet and preserve liquidity,” Dave Hager, President and CEO, said. “We have substantial flexibility with our service contracts, allowing us to quickly recalibrate activity to balance capital investment with cash flow. This advantage, combined with our high-quality asset base and excellent liquidity, positions Devon as well as anyone in the E&P space to navigate through this period of extreme commodity price volatility.”
Beyond the immediate spending cuts announced today, Devon is prepared to further tailor capital activity lower throughout the year should commodity prices remain weak to protect its financial strength. The company’s capital programs have significant flexibility to adjust activity due to minimal exposure to long-term service and supply contracts.
Devon’s financial position continues to remain exceptionally strong with excellent liquidity and low leverage. The company entered 2020 with $1.8 billion of cash and an undrawn credit facility of $3 billion. Further bolstering the company’s financial flexibility is the benefit of no outstanding debt maturities occurring until the end of 2025.
The company’s hedge position in 2020 also enhances its financial position. Devon has more than 40% of its estimated oil production protected for 2020 at a floor price of $53 WTI. The company’s hedge position is composed of swaps and costless collars, with no pricing downside from three-way collars.
Another key factor that will further enhance the company’s financial strength is the sale of the Barnett Shale to Banpu Kalnin Ventures for $770 million. This transaction is scheduled to close on 15 April 2020, and Devon expects no incremental cash taxes associated with the divestiture of these assets.