This Top Oil Stock's Smart Plan Puts It in a Stronger Position to Weather Volatile Crude Oil Prices

Matt DiLallo, The Motley Fool

Fri, May 9, 2025, 12:31 AM 4 min read

Key Points

Devon Energy delivered better-than-expected oil production in the first quarter.
The company is becoming a more efficient producer.
Its smart business optimization plan will boost its free cash flow by $1 billion by the end of 2026.
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Devon Energy (NYSE: DVN) has spent several years building a larger-scale, low-cost U.S. onshore oil and gas producer. That strategy enables the company to produce more free cash flow. It also puts the company in a better position to withstand lower oil prices. In 2025, it will only need crude oil to average around $45 a barrel to generate enough cash to break even with its funding plan.

With crude recently below $60 a barrel, the oil company is in a much better position to handle this year's oil price slump. Meanwhile, its plan to take out an additional $1 billion of costs over the next two years will further enhance its ability to generate cash and weather lower oil prices in the future.

A person looking up at an oil pump. — Image source: Getty Images.

A well-oiled machine

Devon Energy's smart strategy of becoming a more efficient oil and gas producer was on full display during the first quarter. The oil company produced an average of 388,000 barrels of oil per day, which exceeded the top end of its production guidance by 5,000 barrels per day. Meanwhile, its total output averaged 815,000 barrels of oil equivalent (BOE) per day. The company benefited from strong base performance in the Rockies and better-than-expected well performance in the Eagle Ford.

The company delivered this stronger-than-expected production while investing only $946 million in capital, 5% below the midpoint of its guidance. The company's combination of operational excellence and financial discipline enabled it to produce $1.9 billion in operating cash flow, a 17% increase from the prior quarter, and $1 billion in free cash flow.

Devon used its strong free cash flow to reward shareholders and strengthen its balance sheet. The company returned $464 million in cash to investors through its fixed quarterly dividend and $301 million of share repurchases. It also boosted its cash balance by $388 million to $1.2 billion, giving it significant financial flexibility during the current market uncertainty.

Getting even more efficient

"Looking ahead, our strategic priorities are clear," stated CEO Clay Gaspar in the earnings press release. Those priorities are "executing on our high-quality portfolio through operating excellence, maintaining financial strength and rewarding our shareholders, and cultivating a culture of success." He continued, "With our focused strategy and dedicated team, we are confident we are well equipped to navigate challenging markets and deliver lasting value."

The company's recently announced business optimization plan is one factor driving his confidence. That strategy is on track to deliver $1 billion in annual pre-tax cash flow improvements by the end of next year. The company is pulling forward some progress this year, which is allowing it to reduce its capital spending plan by $100 million, lowering the range to $3.7 billion-$3.9 billion. Despite that spending cut, the company is increasing its production guidance for the year. It expects its oil output to average between 382,000 and 388,000 barrels per day, a 1% increase from its initial outlook.

With its capital spending falling and production increasing, Devon will produce more free cash flow this year. That will help mute some of the impact of falling crude prices. Meanwhile, the company's plan will provide an even bigger cash flow boost next year. That will help further mute the effect of lower oil prices in the future while enhancing its upside to higher prices.

Well-positioned to weather lower crude prices

Devon Energy's strategy of building a highly efficient oil and gas producer is enabling it to produce more oil and free cash flow from less capital. It plans to get even more efficient over the next year, which will put it in a stronger position to navigate the volatile oil market. It makes Devon Energy a high-quality oil stock to own throughout the oil market's cycle.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This Top Oil Stock's Smart Plan Puts It in a Stronger Position to Weather Volatile Crude Oil Prices was originally published by The Motley Fool

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