What happened
Shares of Devon Energy (DVN 0.98%) fell more than 12% on Wednesday after the exploration and production leader increased its capital expenditures forecast.
So what
Devon produced an average of 614,000 barrels of oil equivalent (BOE) per day in the third quarter. That's up from 608,000 BOE in the prior-year period.
The energy company's low production costs, which averaged $12.99 per BOE during the quarter, allow it to earn massive profits when oil and gas prices are high. Devon's field-level cash margins surged 40% year over year to $51.90 per BOE.
All told, Devon generated a whopping $2.1 billion of operating cash flow and $1.5 billion of free cash flow in the third quarter alone. That represents growth of 32% and 31%, respectively.
Devon, in turn, increased its cash payout to shareholders by 61% year over year to $1.35 per share. Yet the company's dividend, which contains a variable component, was lower than the $1.55 per share it paid out in the second quarter.
Now what
Devon boosted its fourth-quarter production forecast to between 640,000 and 660,000 BOE per day to account for its recent acquisition of Validus Energy and its assets in the Eagle Ford basin.
However, investors appeared to focus more on Devon's capital expenditures guidance. Management expects capex of $845 million to $915 million, due in part to acquisition-related spending. That was significantly higher than analysts expected.
The increased spending could weigh on Devon's cash flow production in the months ahead, particularly if the economy sinks into a recession and oil prices fall.
