What happened
Shares of oil and gas company Devon Energy (DVN +0.57%) fell as much as 13.4% in trading today after the company reported disappointing fourth-quarter 2022 financial results. Shares were down 10.5% to close trading.
So what
Production fell 2% from a year ago to 636,000 barrels of oil equivalent (BOE) per day in the quarter but a fire will lower first-quarter 2023 output by 10,000 BOE before the company resumes operations later in the quarter. Production costs did fall to $12.22 per BOE on lower tax costs.
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Earnings of $1.66 per share fell well below analyst estimates of $1.75 per share. Guidance for the full year was for 643,000 to 663,000 BOE and capital expenditures of $3.6 billion to $3.8 billion.
Now what
It's the lower-than-expected production and the higher-than-expected costs that have surprised investors. Energy companies aren't generally going to be great long-term growth companies, so cash now is valued much more highly than cash in the future. That's a short-term view, but it's the nature of the oil and gas business today.
Shares are only trading for 10 times 2023 earnings estimates, but that may not be the value that it seems to be. Energy production continues to rise and prices have been in decline since peaking early in 2022. That may limit the upside from here, even if management's focus is on preserving capital and improving cash flows.
