Investing.com - Financial Markets Worldwide
June's AI-picked stock updates now live. See what's new in Tech Titans, up 28.5% year to date.Unlock Stocks

Optimizing Shareholder Value – A Lesson from Devon Energy’s Management

BySimon Lack
Published 02/26/2012, 01:27 AM
Updated 07/09/2023, 06:31 AM
DVN
-

In November of last year, Devon (symbol: DVN) completed its $3.5B share repurchase program announced in May of 2010.  Under this program the company repurchased 49.2MM shares, for an average price of $71/share, reducing the share count by 10%!  During the same period, management sold non-core acreage raising the cash to fund the repurchases, pay down debt, and acquire onshore core acreage.  This strategy realizes full asset value for non-core properties, improves Devon’s balance sheet, reduces shares outstanding, and allows management to focus on the highest IRR projects.  As shareholders we love this.  A little bit of arithmetic shows why.

As seen in the table below, the company sells 7% of its proved reserves for $10B.  The after tax proceeds of $8B are used to: reduce shares outstanding by 10% for $3.5B; reduce debt by $1.8B; acquire new core acreage positions for $1.2B; add $500M of cash to the balance sheet.  Furthermore, Devon’s management has excelled at more than optimizing the capital structure as they have demonstrated continued strong operating results increasing proved reserves per share by 17% notwithstanding the divestitures.

Pre Plan

Using a simplistic analysis for debt adjusted value per share based on proved reserves illustrates how Devon’s management created $27/share of value for stock holders over the past two years.  While there are other ways to value shares, this way does serve as a useful evaluation of Devon’s value enhancing capital redeployment and highlights the virtuous cycle of share repurchases for undervalued companies.

Data is taken from 10-Ks, earnings releases, and company presentations

Latest comments

Loading next article…
Install Our App
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.