NEW YORK (TheStreet) -- Saudi Arabia and the 11 other oil-producing nations in the Organization of the Petroleum Exporting Countries failed to apply the brakes to plunging oil prices when it left production alone during last week's meeting.
Devon Energy's (DVN) can still post double-digit production growth and improve its profitability. Here's why.
The Oklahoma City oil and gas producer has land-based operations mainly in Oklahoma, Texas, New Mexico and in Alberta, Canada. Devon is also a majority owner of EnLink Midstream Partners LP (ENLK) and EnLink Midstream LLC (ENLC) , owners of oil and gas pipelines, processing plants and storage facilities.
Like energy companies such as EOG Resources (EOG) , Chesapeake Energy (CHK) , QEP Resources (QEP) and Newfield Exploration (NFX) , Devon has been focusing on higher-margin oil production rather than natural gas. Thanks to its new focus and selling some gas operations, Devon said Nov. 14 it will increase its total oil production by more than 35% in the current year.
Since then WTI crude futures have continued their fall, touching five-year lows on Friday after OPEC said it wasn't cutting production. Devon shares fell by nearly 8% on Friday. The stock has dropped 4.5% for the year to date.
Devon CEO John Richels said last month his company can tackle this tough market since it has one of the "strongest balance sheets" in the sector. This financial strength will be further strengthened by the expected sale of assets, or drop down, to EnLink, he said.
Goldman Sachs analyst Brian Singer, who covers the company, agrees, saying while Devon might have negative free cash flows of $800 million next year -- signifying greater cash outflows as capital expenditure than cash inflows from operations -- this can be absorbed by Devon's "strong balance sheet."